Tracking liquidity order

ABSTRACT

A tracking liquidity order and related market center and process are disclosed which allow posting market centers (e.g. exchanges) to fill routable, smaller orders that would have otherwise routed off the posting market center. Such tracking liquidity orders increase the liquidity of that posting market center and allow it to execute more orders internally, without having to route them to an away market center.

BACKGROUND

Typically, when a trader sends an order to a specific market center(e.g., an exchange), that market center, to the extent it can, executesthe order itself. One instance where a market center is not allowed toexecute an order sent to it is where that market center is not at thenational best bid or offer (“NBBO”). In that situation, the marketcenter receiving the order is required to send, or route, the order tothe away market center that is at the NBBO. In the current marketplacestructure, however, when an order is routed to a market center with atrading floor, the routed order is seen by the floor, givingparticipants as much as 30 seconds to decide whether they want to tradeagainst the order or not. During that interval, market prices can movequickly, causing a disadvantage to the trader whose order was routed.The routed order has exposed its price, has been unavailable for othermatching opportunities during that time interval and, in the end, maynot receive a fill anyway. Accordingly, there is a need for an ordertype that increases the liquidity on a posting market center and therebyreduces the number of orders that need to route off that market centerfor execution.

However, although liquidity providers such as Market Makers are willingto interact with smaller-sized incoming orders to prevent them fromrouting, such as orders sent by retail customers, these liquidityproviders may be unwilling to be swept by large incoming orders, whichare typically sent by more “informed” market participants such asinstitutional firms. Institutional firms often employ algorithmicfront-end “smart router” systems that look for hidden liquidity onmarket centers by sending an order that exceeds the size of a marketcenter's published bid or offer. By doing so, they not only executeagainst all marketable displayed trading interest, they can also executeagainst all marketable nondisplayed trading interest, such as theportions of orders kept in reserve. If an incoming order is large enoughto execute not only against all the displayed interest, but also againstall the nondisplayed interest as well, then some liquidity providers maynot wish to participate in the execution.

Accordingly, there is a need for an order type which intercepts ordersthat are about to be routed off that market center for execution onanother market, which order type, at the same time, does not allow theorders provided by the liquidity provider to be swept by large incomingorders. Thus, the order types needed provide a fill of last resort thatprevents any portion of the appropriately sized incoming order fromrouting.

SUMMARY

According to an aspect of the present invention, a method for increasinginternal order fills on a market center includes providing a marketcenter with displayed orders and posting a tracking liquidity order on aposting market center, wherein the tracking liquidity order has a hiddenprice and size component. The method further includes the automaticpricing of the tracking liquidity orders according to the present valuesof the national best bid and offer, wherein buy orders track thenational best bid and sell orders track the national best offer. Themethod further includes reviewing orders coming into the market centerto determine if the orders are routable and whether the size of theincoming orders is not greater than the size component of the trackingliquidity order. Wherein if an incoming order is routable and itscurrent executable quantity does not exceed the size of the trackingliquidity order, the method executes the incoming order against thetracking liquidity order.

DESCRIPTION OF THE DRAWINGS

These and other features, aspects and advantages of the presentinvention will become better understood with regard to the followingdescription, appended claims and accompanying drawings where:

FIG. 1 is a block diagram illustrating the trading environment in whichan embodiment of the present invention operates;

FIG. 2 is a flow diagram illustrating a process implemented by anembodiment of the present invention for processing an incoming trackingliquidity buy order;

FIG. 3 is a flow diagram illustrating a process implemented by anembodiment of the present invention for processing an incoming trackingliquidity sell order;

FIG. 4 is a flow diagram illustrating a process implemented by anembodiment of the present invention for tracking liquidity buy orderinteraction with an incoming sell order;

FIG. 5 is a flow diagram illustrating a process implemented by anembodiment of the present invention for tracking liquidity sell orderinteraction with an incoming buy order;

FIG. 6 is a flow diagram illustrating a process implemented by anembodiment of the present invention for determining whether to match anincoming sell order with a tracking liquidity buy order or to route theorder;

FIG. 7 is a flow diagram illustrating a process implemented by anembodiment of the present invention for determining whether to match anincoming buy order with a tracking liquidity sell order or to route theorder;

FIG. 8 is a flow diagram illustrating a process implemented by anembodiment of the present invention to determine if a tracking liquiditybuy order should be re-priced; and

FIG. 9 is a flow diagram illustrating a process implemented by anembodiment of the present invention to determine if a tracking liquiditysell order should be re-priced.

DETAILED DESCRIPTION

Referring to FIG. 1 , a trading environment in which an embodiment ofthe system and method of the present invention operates is depicted. Theexamples discussed herein describe the use and application of thepresent invention in an equity security market center environment, butit should be understood that the present invention could be used in anytype of financial instrument market center environment (e.g., equities,futures, options, bonds, etc.). The trading environment of thisembodiment includes a posting market center 20 which interacts with anumber of other market centers 24 (i.e. away markets), traders at orderending firms 26 and Market Makers 31. It should be understood that thetrading environment of this embodiment supports but does not requireMarket Makers 31, a Market Maker Interface 32, or Market Maker Quotes33. It should also be understood that the posting market center 20referred to herein refers to a computing system having sufficientprocessing and memory capabilities and does not refer to a specificphysical location. In fact, in certain embodiments, the computing systemmay be distributed over several physical locations. It should also beunderstood that any number of traders 26 or Market Makers 31 or awaymarket centers 24 can interact with the posting market center 20. Theposting market center 20 is the market center on which a specific trader26 posts a specific order, and on which a specific Market Maker 31 postsa specific quote. The posting market center 20 includes an ordermatching engine 21, which validates, matches and processes all ordersand quotes on the posting market center 20. In this embodiment, the codefor the order matching engine 21 is stored in the posting marketcenter's memory.

The posting market center 20 may also include a quote and last saleinterface 23 that interacts with the away market centers 24 to capturequote and last sale information. This information is stored to a bestbids and offers data structure 25. This data structure 25 is where themarket best bid and offer and last sale information is stored. This datastructure 25 is also where the market trade reports (prints) are stored.The posting market center 20 may also include an order and tradeparameters data structure 27. The order and trade parameters datastructure 27 stores pre-defined trading parameters and rules that areused by the order matching engine 21 in matching orders and executingtrades. The posting market center 20 may also include an order andexecution interface 28 which interacts with the traders 26, the MarketMakers 31, the away market centers 24 and the order matching engine 21in the order execution process. The posting market center 20 may alsoinclude an order information data structure 29 where order informationis stored and a trade information data structure 30 where completedtrade information is stored. The posting market center 20 may alsoinclude a Market Maker interface 32 that interacts with Market Makers 31to capture Market Maker bids and offers in assigned issues. These bidsand offers are logically depicted in a Market Maker Quotes structure 33in this illustration. In actuality, the Market Maker bids and offers mayphysically reside in the away market center best bids and offers datastructure 25.

Throughout the discussion herein, it should be understood that thedetails regarding the operating environment, data structures, and othertechnological elements surrounding the posting market center 20 are byway of example and that the present invention may be implemented invarious differing forms. For example, the data structures referred toherein may be implemented using any appropriate structure, data storage,or retrieval methodology (e.g., local or remote data storage in databases, tables, internal arrays, etc.). Furthermore, a market center ofthe type described herein may support any type of suitable interface onany suitable computer system.

Order Matching Engine and Order Execution Processes

For every order type processed on the posting market center 20, theorder matching engine 21 determines how to rank the order in its“internal book” according to whether the order is disclosed, partiallydisclosed or not disclosed at all to the marketplace. The internal bookis a virtual book of all orders resting on the posting market center.For purposes of the examples in this document, the Top-of-Book best bidand offer (“BBO”) quotes from each protected away market center may alsobe included in the internal book, regardless of whether they actuallyreside in a different table or not. In this embodiment, an order that isfully disclosed to the marketplace has higher matching priority than anorder at the same price level that is partially disclosed or notdisclosed. In this embodiment, trading interest resident on the postingmarket center always has priority over away market interest at the sameprice level. However, in the case where Tracking Liquidity Orders arepresent on the posting market center 20 but no single Tracking LiquidityOrder has sufficient size to fully intercept an incoming order, then theTracking Liquidity Orders are not required to interact with the incomingorder even though the Tracking Liquidity Orders have priority over awaymarket interest at the same price level, and the incoming order willroute to an away market instead of executing on the posting marketcenter 20.

The most common example of an order type that is fully disclosed is asimple limit order. The most common example of an order type that ispartially disclosed and partially nondisclosed is an order with reserveshares (i.e. a Reserve Order). The Tracking Liquidity Order of thepresent invention described herein is one of the few order types that isnever disclosed (i.e. is completely hidden from the marketplace). Ordersthat must execute immediately (e.g., Market Orders and IOC orders) arenot included in this discussion of order ranking.

A Tracking Liquidity Order is a nondisplayed order priced by the NBBOthat can only execute on the posting market center 20 and does not routeout to other away market centers. As a Tracking Liquidity Order has anondisplayed size, reserve functionality is not available for this ordertype. Similarly, as a Tracking Liquidity Order has a nondisplayed price,discretionary functionality is also not available for this order type.As a Tracking Liquidity Order is automatically pegged to the same sideof the NBBO, the limit price specified on the order serves only todefine the maximum price (ceiling) to which a Tracking Liquidity BuyOrder will follow the NBB, or the minimum price (floor) to which aTracking Liquidity Sell Order will follow the NBO.

As a Tracking Liquidity Order can only execute with orders about toroute off the posting market center 20 and is never itself eligible forrouting, a Tracking Liquidity Buy Order can never execute against aTracking Liquidity Sell Order. This is true even if their currentexecutable prices are equal or overlapping as a result of the ordershaving followed the NBBO into a lock or cross. It should also be notedthat the requirement for executing only against routable orders meansthat a Tracking Liquidity Order cannot match with incoming orders orcommitments received from away market centers 24, as the posting marketcenter 20 does not presently re-route orders or commitments it receivesfrom other market centers 24.

If the posting market center 20 has Odd Lot Dealers or supports Odd Lotfunctionality, then Tracking Liquidity Orders may only be entered inround lot denominations in those instruments (e.g., equity securities).Odd Lot Dealer functionality is outside the scope of this invention.However, a Tracking Liquidity Order will interact with an incoming orderwhose Leaves quantity is an odd lot size or a mixed lot size, providingthe size is less than the Tracking Liquidity Order.

In a preferred, but not limiting, embodiment of the present invention,usage of a Tracking Liquidity Order in some issues may be restricted tocertain market participants. For example, it may be limited to the LeadMarket Maker in issues that trade exclusively on the posting marketcenter 20 or may be limited to appointed Market Makers in issues thatare traded on multiple market centers. In a preferred, but not limiting,embodiment of the present invention, usage of a Tracking Liquidity Orderin issues that are traded on multiple market centers may also beextended to market participants such as broker/dealers or firms 26, butonly with the provision that they can submit a Tracking Liquidity Orderon one side of the market only (i.e., a Tracking Liquidity Buy Order ora Tracking Liquidity Sell Order, but not both sides in the same issue),to prevent such market participants from engaging in behavior that couldbe construed as “market making” without actually being appointed asMarket Makers 31 on the posting market center 20.

In a preferred embodiment of the present invention, Tracking LiquidityOrders continue to peg to the NBBO even if the NBBO should become lockedor crossed, (i.e., NBB equal to the NBO, or NBB higher than the NBO,respectively) and will execute at such locked/crossed price. In adifferent embodiment of the present invention, Tracking Liquidity Ordersmay cease pegging to the NBBO should the NBBO become locked or crossedand may instead remain active at their present prices or else may bemomentarily rendered ineligible for trading until such time as the NBBObecomes unlocked and/or uncrossed.

When the posting market center 20 of this embodiment of the presentinvention receives an incoming order, it delivers it to one of severalOrder Execution “Processes” implemented by the order matching engine 21.In this embodiment, the following Order Execution Processes aresupported for all issues:

-   -   Display Process    -   Working Process        -   Reserve Process sublevel        -   Liquidity Process sublevel (optional—see below)        -   Discretionary Process sublevel    -   Tracking Process    -   Routing Process        In this implementation of the invention, the Liquidity Process        sublevel is supported only if the proprietary order type known        as a Passive Liquidity Order is currently operable on the        posting market center 20. It should be noted that the Tracking        Liquidity Orders of the present invention operate as described        even if no orders are present or supported in the Working        Process level.

Referring to the first level, the Display Process is at the heart of theposting market center order matching engine and effects the ranking ofdisplayed nonmarketable limit orders on a strict price/time prioritybasis. Referring to the second level, the Working Process includes theReserve Process sublevel for reserve orders; the optional LiquidityProcess sublevel for Passive Liquidity Orders; and the DiscretionProcess sublevel for discretionary orders. Referring to the third level,the Tracking Process stores all Tracking Liquidity Orders in a strictprice/time priority basis. At any given price level, displayed residentinterest has priority over nondisplayed resident interest in thisembodiment.

Market Maker Processes

If an issue has appointed Market Makers, the posting market center mayalso support a Lead Market Maker Guarantee Process and/or a DirectedOrder Process, wherein such processes would precede the Display Processand have the highest matching priority. Market Maker quotes not eligiblefor execution in the Lead Market Maker Guarantee Process or the DirectedOrder Process are eligible for execution in the Display Process instead,where the quotes are ranked in strict price/time priority with displayedlimit orders on the book even though they reside in separate tables. Thematching priority of Tracking Liquidity Orders in relation to MarketMaker quotes is described in this document and illustrated by means ofseveral examples.

Tracking Liquidity Order Execution Priority on the Posting Market Center

When the order matching engine 21 processes a non-marketable order, itinserts the non-marketable order into the appropriate processing levelof the posting market center order book according to the trading rulesthat govern that order type. In this embodiment, the order matchingengine 21 determines the processing level that the receivednon-marketable order should be placed into according to the followingrules:

-   -   Fully-disclosed orders are inserted in the Display Process only.        Orders are ranked in the Display Process according to strict        price/time priority;    -   Reserve Orders are inserted in the Display Process and the        Working Process. The disclosed portion resides in the Display        Process and is ranked according to strict price/time priority.        The undisclosed (reserve) size resides in the Reserve Process        sublevel, and is ranked according to the price/time priority of        the displayed component;    -   Passive Liquidity Orders, if supported, are inserted in the        Working Process only. The entire order resides in the Liquidity        Process sublevel. Passive Liquidity Orders are ranked according        to strict price/time priority within the Liquidity Process;    -   Discretionary Orders are inserted in the Display Process and the        Working Process. The disclosed portion resides in the Display        Process and is ranked according to strict price/time priority.        The undisclosed (discretionary) price resides in the Discretion        Process sublevel, and is ranked according to the price/time        priority of the displayed component; and    -   Tracking Liquidity Orders are inserted in the Tracking Process        only. Orders are ranked in the Tracking Process according to        strict price/time priority.

An exception to the price/time priority model described above exists forissues with assigned Market Makers. In some embodiments, underprescribed conditions, customer orders and/or Lead or Designated MarketMakers quotes may be granted time priority over other resident tradinginterest at the same price.

It should be understood that the description of the ranked OrderExecution Processes and sub-processes herein is only meant to illustratethe logical processing concepts and does not imply a physicalimplementation. The purpose of describing separate processes is toillustrate how various order types have priority over other order typeswithin the order matching engine 21.

In this embodiment, when the order matching engine 21 acts to tradeorders in the book, it attempts to execute an incoming order accordingto the priority of its Order Execution Processes. If an order isreceived in an issue with appointed Market Makers, the order matchingengine 21 generally attempts to execute in the Lead Market MakerGuarantee Process or the Directed Order Process first. If an ordercannot be executed in either process, or if an order is partiallyexecuted but still has quantity remaining to trade, then the ordermatching engine 21 looks to the Display Process next. If orders residein the Display Process level at the best price point, it matches thoseorders first. If the order matching engine 21 exhausts all orders in theDisplay Process level at that price point, then it moves to the ReserveProcess level next. If it exhausts all orders in the Reserve Processlevel at that price point, then it moves to the Liquidity Process levelnext. If it exhausts all orders in the Liquidity Process level at thatprice point, then it moves to the Discretion Process level next. If itexhausts all orders in the Discretion Process level at that price pointand the incoming order is eligible for routing, then it moves to theTracking Process level next. If it cannot execute the order in theTracking Process, then it moves to the Routing Process and routes theorder off the posting market center 20 to one or more away marketcenters.

The table below represents an embodiment of the buy side of the internalbook of the posting market center 20 (an equivalent table exists for thesell side of the book):

Price point Display Reserve Liquidity Discretion Tracking Routing Pricen Highest Second Third Fourth Fifth Lowest priority priority prioritypriority priority priority

If the implementation of the present invention does not support PassiveLiquidity Orders, then the embodiment of the buy side of the internalbook looks like this instead:

Price point Display Reserve Discretion Tracking Routing Price n HighestSecond Third Fourth Lowest priority priority priority priority priority

In the examples used throughout this document, away market quotes (i.e.,the Best Bid and Offer Top of Book quotes in data structure 25disseminated by each protected away market 24) are shown as logicallyresiding in the Routing Process. The purpose of this is to demonstratethat the Routing Process has the lowest priority for order execution atany given price level.

Example: Ranking of Order Types at the Same Price Point

To illustrate how orders are conceptually inserted within each of theseprocess levels, the following example starts with an empty book for thebuy side which is then populated with different order types at the sameprice.

In this example, the posting market center 20 detects the following bidfrom Away Market Center A:

-   -   Bid 3000 @ 20.00

In this illustration, away market quotes are shown residing in theinternal book to indicate their relative ranking compared to ordersresiding in other Order Execution Processes. This illustration is alogical depiction only and does not imply a physical structure. In anactual trading environment, the away market quotes may reside in aseparate table. The posting market center's internal book looks likethis:

Price point Display Reserve Liquidity Discretion Tracking Routing 20.00Market A: 3000 @ 20.00

-   -   Away Market A establishes the NBB at the price of $20.00 in this        example.

The posting market center 20 receives the following simple limit order:

-   -   Order A: Buy 1000 @ 20.00

As this order is to be fully disclosed, the order matching engine 21inserts the order in the Display Process level only. The posting marketcenter's internal book looks like this:

Price point Display Reserve Liquidity Discretion Tracking Routing 20.00Order A: Market A: 1000 @ 3000 @ 20.00 20.00

The posting market center 20 next receives this Reserve Order:

-   -   Order B: Buy 8000 @ 20.00, Show size=500, Reserve size=7500

As this order is to be partially disclosed (Show size=500) and partiallynon-disclosed (Reserve size=7500), the order matching engine 21 insertsthe order in the Display Process level and the Reserve Process level.The book, at this point, looks like this:

Price point Display Reserve Liquidity Discretion Tracking Routing 20.00Order A: Order B: Market A: 1000 @ 7500 @ 3000 @ 20.00 20.00 20.00 OrderB: 500 @ 20.00

The posting market center 20 next receives this Passive Liquidity Order:

-   -   Order C: Buy 9000 @ 20.00, Passive Liquidity

The order matching engine 21 inserts this order in the Liquidity Processlevel. The internal book looks like this:

Price point Display Reserve Liquidity Discretion Tracking Routing 20.00Order A: Order B: Order C: Market A: 1000 @ 7500 @ 9000 @ 3000 @ 20.0020.00 20.00 20.00 Order B: 500 @ 20.00

The posting market center 20 next receives this Discretionary Order:

-   -   Order D: Buy 2000 @ 19.99, with discretion to 20.01        A Discretionary Order is another example of an order that has a        disclosed component and a non-disclosed component. In this case,        the disclosed component is the displayed price and size, and the        non-disclosed component is the most aggressive price that the        order is willing to “step up” to if necessary to effect a trade.        This is its discretionary price.

The order matching engine 21 inserts Order D in the Display Processlevel as 2000 shares at the price point of $19.99, its display price. Italso “inserts” links to Order D in the Discretion Process level at theprice points up to and including $20.01, its discretionary price.Although in the Table below, Order D may appear to reside in multiplecells, it only resides in the Display Process, where it is rankedaccording to price/time priority like any other displayed order. TheTable merely illustrates that Order D can also “step up” to the pricesof $20.00 and $20.01 if necessary to effect a trade.

The order matching engine 21 inserts this order in the DiscretionProcess level. The internal book conceptually looks like this:

Price point Display Reserve Liquidity Discretion Tracking Routing 20.01Order D: 2000 @ 20.01 20.00 Order A: Order B: Order C: Order D: MarketA: 1000 @ 7500 @ 9000 @ 2000 @ 3000 @ 20.00 20.00 20.00 20.00 20.00Order B: 500 @ 20.00 19.99 Order D: 2000 @ 19.99

As Discretionary prices are not displayed to the marketplace, it isimportant to note that the posting market center 20 Best Bid (and hencethe NBB also) is still $20.00, not $20.01.

The posting market center 20 next receives this Tracking LiquidityOrder:

-   -   Order E: Buy 1000 @ 20.01, Tracking Liquidity Order        Unlike Discretionary Order D, Tracking Liquidity Order E is        inserted in the internal book at one price level only—the NBB        price, which is currently $20.00. The reason for this is because        Tracking Liquidity Order E cannot trade at a price higher than        the NBB according to the rules governing the order type. In        contrast, Discretionary Order D can “step up” to the price of        $20.01 to intercept an incoming sell order priced at $20.01.        Tracking Liquidity Order E's price of $20.01 indicates that it        can peg to the NBB up to $20.01, it does not mean that Order E        can execute up to $20.01 at any time. In fact, the only time        Order E can execute at $20.01 is when the NBB is $20.01.

The order matching engine 21 inserts this order in the Tracking Processlevel. The highest pegging price for the order, i.e., it'suser-specified limit price, is stored as its “MaxPrice.” The internalbook conceptually looks like this:

Price point Display Reserve Liquidity Discretion Tracking Routing 20.01Order D: 2000 @ 20.01 20.00 Order Order Order Order Order Market A: B:C: D: E: A: 1000 @ 7500 @ 9000 @ 2000 @ 1000 @ 3000 @ 20.00 20.00 20.0020.00 20.00, 20.00 MaxPrice = 20.01  Order B: 500 @ 20.00 19.99 Order D:2000 @ 19.99

An incoming order to Sell 21,000 @ 20.00 would:

-   -   Trade all the orders priced at $20.00 in the Display Process        level first (1000 shares of Order A, and 500 shares of Order B);    -   Trade all the orders priced at $20.00 in the Reserve Process        level next (7500 reserve shares of Order B);    -   Trade all the orders priced at $20.00 in the Liquidity Process        level next (9000 shares of Order C);    -   Trade all the orders that can step up to $20.00 in the        Discretionary Process level next (2000 shares of Order D); and    -   Trade Order E at $20.00 in the Tracking Process, as Order E has        sufficient size to intercept the remaining 1000 shares of the        incoming Sell order.

In contrast, an incoming order to Sell 21,001 @ 20.00 (i.e., an orderwhose size is one share larger than in the previous example) would:

-   -   Trade all the orders priced at $20.00 in the Display Process,        Reserve Process, Liquidity Process, and Discretionary Process,        exactly as described above; and    -   Route the remaining 1001 shares of the incoming Sell Order to        Away Market A at $20.00 in the Routing Process, as Tracking        Liquidity Order E does not have sufficient size (1000 shares) to        fully intercept the remaining 1001 shares of the incoming Sell        order.

Example: Ranking of Order Types at Different Price Points

Even though the Tracking Liquidity Orders of the present invention tradebehind all orders with the same displayed price, all orders are rankedfirst by price priority. This means a nondisplayed order trades ahead ofdisplayed orders if the displayed orders have inferior prices.

In this example, the internal book contains the same orders as in theprevious examples. However, Away Market A has just increased its bidprice to $20.01, as shown below:

Price point Display Reserve Liquidity Discretion Tracking Routing 20.01Order Market D: A: 2000 @ 3000 @ 20.01 20.01 20.00 Order A: Order B:Order C: Order D: Order E: 1000 @ 7500 @ 9000 @ 2000 @ 1000 @ 20.0020.00 20.00 20.00 20.00, MaxPrice = 20.01  Order B: 500 @ 20.00 19.99Order D: 2000 @ 19.99

-   -   The NBB price is now 20.01. Away Market A is alone at the NBB.

As Order E is a Tracking Liquidity Order, its current executable priceis evaluated whenever the NBB changes. In this example, Order E isautomatically repriced at $20.01, the new NBB, as the NBB price is nothigher than Order E's MaxPrice of $20.01. As Tracking Liquidity Ordersare completely hidden from the marketplace, the posting market center 20Best Bid does not change. The internal book looks like this:

Price point Display Reserve Liquidity Discretion Tracking Routing 20.01Order Order Market D: E: A: 2000 @ 1000 @ 3000 @ 20.01 20.01, 20.01MaxPrice = 20.01  20.00 Order A: Order B: Order C: Order D: 1000 @ 7500@ 9000 @ 2000 @ 20.00 20.00 20.00 20.00 Order B: 500 @ 20.00 19.99 OrderD: 2000 @ 19.99

An incoming order to Sell 2600 @ 20.01 would:

-   -   Look for orders priced at $20.01 in the Display Process level        first, finding none;    -   Look for orders priced at $20.01 in the Reserve Process level        next, finding none;    -   Look for orders priced at $20.01 in the Liquidity Process level        next, finding none;    -   Trade all the orders that can step up to $20.01 in the        Discretionary Process level next (2000 shares of Order D); and    -   Trade 600 shares of Order E at $20.01 in the Tracking Process,        as Order E has sufficient size (1000 shares) to intercept the        remaining 600 shares of the incoming Sell order. The remaining        400 shares of Order E are canceled immediately as a Tracking        Liquidity Order by definition can only execute once.

At the conclusion of the trades, Discretionary Order D and TrackingLiquidity Order E would be completely depleted and removed from theinternal book.

Example: Ranking of Tracking Liquidity Orders in the Tracking Process

As previously stated, Tracking Liquidity Orders are ranked in strictprice/time priority within the Tracking Process. All Tracking LiquidityOrders are ranked according to their current executable prices, nottheir specified limit ceiling/floor prices. Tracking Liquidity BuyOrders are ranked according to the lower of the current NBB price andtheir specified MaxPrice. Similarly, Tracking Liquidity Sell Orders areranked according to the higher of the current NBO price and theirspecified MinPrice.

In this example, the NBBO is $19.99 to $20.02 when the followingTracking Liquidity Orders are received in this sequence:

-   -   Order A: Buy 400 @ 19.99    -   Order B: Buy 500 @ 20.01    -   Order C: Buy 300 @ 20.00    -   Order D: Buy 600 @ 20.01    -   Order E: Buy 200 @ 20.00        The order matching engine 21 evaluates each incoming order and        assigns its current executable price. As the NBB is presently        $19.99 in this example, and the specified limit price of each of        the five received orders is greater than or equal to the NBB        price, the order matching engine 21 assigns the current        executable price (“CurrentBuyPrice”) of $19.99 to each order and        stores it in price/time priority in the Tracking Process in the        sequence shown below:

Price point Tracking Order Details MaxPrice 19.99 Order A: Buy 400 @19.99 19.99 Order B: Buy 500 @ 19.99 20.01 Order C: Buy 300 @ 19.9920.00 Order D: Buy 600 @ 19.99 20.01 Order E: Buy 200 @ 19.99 20.00

-   -   The NBB changes to 20.00.

The order matching engine 21 retrieves the best order, Order A. Itcompares the MaxPrice of Order A ($19.99) to the NBB ($20.00), anddetermines that Order A must remain priced at $19.99, the lower of itsMaxPrice and the NBB.

The order matching engine 21 retrieves the next best order, Order B. Itcompares the MaxPrice of Order B ($20.01) to the NBB ($20.00), anddetermines that Order B must be repriced at $20.00, the lower of itsMaxPrice and the NBB. Order B is now the best order. The internal booklooks like this:

Price point Tracking Order Details MaxPrice 20.00 Order B: Buy 500 @20.00 20.01 19.99 Order A: Buy 400 @ 19.99 19.99 Order C: Buy 300 @19.99 20.00 Order D: Buy 600 @ 19.99 20.01 Order E: Buy 200 @ 19.9920.00

The order matching engine 21 retrieves the next best order, Order C. Itcompares the MaxPrice of Order C ($20.00) to the NBB ($20.00), anddetermines that Order C must be repriced at $20.00, as its MaxPrice andthe NBB are equal. Order C is inserted in price/time priority behindOrder B. The internal book looks like this:

Price point Tracking Order Details MaxPrice 20.00 Order B: Buy 500 @20.00 20.01 Order C: Buy 300 @ 20.00 20.00 19.99 Order A: Buy 400 @19.99 19.99 Order D: Buy 600 @ 19.99 20.01 Order E: Buy 200 @ 19.9920.00

The order matching engine 21 retrieves the next best order, Order D. Itcompares the MaxPrice of Order D ($20.01) to the NBB ($20.00), anddetermines that Order D must be repriced at $20.00, the lower of itsMaxPrice and the NBB. Order D is inserted in price/time priority behindOrder C. The internal book looks like this:

Price point Tracking Order Details MaxPrice 20.00 Order B: Buy 500 @20.00 20.01 Order C: Buy 300 @ 20.00 20.00 Order D: Buy 600 @ 20.0020.01 19.99 Order A: Buy 400 @ 19.99 19.99 Order E: Buy 200 @ 19.9920.00

The order matching engine 21 retrieves the last order, Order E. Itcompares the MaxPrice of Order E ($20.00) to the NBB ($20.00), anddetermines that Order E must be repriced at $20.00, as its MaxPrice andthe NBB are equal. Order E is inserted in price/time priority behindOrder D. The internal book looks like this:

Price point Tracking Order Details MaxPrice 20.00 Order B: Buy 500 @20.00 20.01 Order C: Buy 300 @ 20.00 20.00 Order D: Buy 600 @ 20.0020.01 Order E: Buy 200 @ 20.00 20.00 19.99 Order A: Buy 400 @ 19.9919.99

-   -   The NBB changes to $20.01.

The order matching engine 21 retrieves its best order, Order B. Itcompares the MaxPrice of Order E ($20.01) to the NBB ($20.01), anddetermines that Order B must be repriced at $20.01, as its MaxPrice andthe NBB are equal. Order B is inserted in the internal book according toits new price of $20.01. The internal book looks like this:

Price point Tracking Order Details MaxPrice 20.01 Order B: Buy 500 @20.01 20.01 20.00 Order C: Buy 300 @ 20.00 20.00 Order D: Buy 600 @20.00 20.01 Order E: Buy 200 @ 20.00 20.00 19.99 Order A: Buy 400 @19.99 19.99

The order matching engine 21 retrieves its next-best order, Order C. Itcompares the MaxPrice of Order C ($20.00) to the NBB ($20.01), anddetermines that Order C must remain at its current executable price of$20.00, the lower of its MaxPrice and the NBB.

The order matching engine 21 retrieves its next-best order, Order D. Itcompares the MaxPrice of Order D ($20.01) to the NBB ($20.01), anddetermines that Order D must be repriced at $20.01, as its MaxPrice andthe NBB are equal. Order D is inserted in the internal book behind OrderB. The internal book looks like this:

Price point Tracking Order Details MaxPrice 20.01 Order B: Buy 500 @20.01 20.01 Order D: Buy 600 @ 20.01 20.01 20.00 Order C: Buy 300 @20.00 20.00 Order E: Buy 200 @ 20.00 20.00 19.99 Order A: Buy 400 @19.99 19.99

The order matching engine 21 retrieves its next-best order, Order E. Itcompares the MaxPrice of Order E ($20.00) to the NBB ($20.01), anddetermines that Order E must remain at its current executable price of$20.00, the lower of its MaxPrice and the NBB.

The order matching engine 21 retrieves its last order, Order A. Itcompares the MaxPrice of Order A ($19.99) to the NBB ($20.01), anddetermines that Order A must remain at its current executable price of$19.99, the lower of its MaxPrice and the NBB.

-   -   The NBB changes to $20.00.

The order matching engine 21 retrieves its best order, Order B. As thecurrent executable price of Order B ($20.01) is higher than the NBB($20.00), the order must be repriced less aggressively, at the NBB.Order B is inserted in the internal book behind Orders C and E, whichhave time priority at the price of $20.00. The internal book looks likethis:

Price point Tracking Order Details MaxPrice 20.01 Order D: Buy 600 @20.01 20.01 20.00 Order C: Buy 300 @ 20.00 20.00 Order E: Buy 200 @20.00 20.00 Order B: Buy 500 @ 20.00 20.01 19.99 Order A: Buy 400 @19.99 19.99

The order matching engine 21 retrieves its next-best order, Order D. Asthe current executable price of Order D ($20.01) is higher than the NBB($20.00), the order must be repriced less aggressively, at the NBB.Order D is inserted in the internal book behind Order B. The internalbook looks like this:

Price point Tracking Order Details MaxPrice 20.00 Order C: Buy 300 @20.00 20.00 Order E: Buy 200 @ 20.00 20.00 Order B: Buy 500 @ 20.0020.01 Order D: Buy 600 @ 20.00 20.01 19.99 Order A: Buy 400 @ 19.9919.99

The order matching engine 21 retrieves its next-best order, Order C. Asthe current executable price of Order C ($20.00) is equal to the NBB($20.00), the order does not need to be repriced, and retains itscurrent ranking in the internal book. As Order C does not need to berepriced lower, then the order matching engine 21 does not need toreevaluate the price of the remaining orders (Orders E and A) as thoseorders are ranked lower in the internal book than Order C and thereforewill not need to be repriced either.

Example: Tracking Liquidity Order Size Trumps Time Priority

As illustrated in the previous examples, Tracking Liquidity Buy Ordersare ranked according to their current executable price(CurrentBuyPrice), not according to their maximum pegging price(MaxPrice). However, although the orders are ranked in price/timepriority at their CurrentBuyPrice, an order's size will trump anotherorder's time if the higher-ranked order does not have sufficient size tofully intercept an incoming order and prevent any part of it fromrouting.

In this example, the NBB is 20.00 and the orders are ranked as in theprevious example:

Price point Order Details MaxPrice 20.00 Order C: Buy 300 20.00 Order E:Buy 200 20.00 Order B: Buy 500 20.01 Order D: Buy 600 20.01 19.99 OrderA: Buy 400 19.99The posting market center 20 receives the following order:

-   -   Sell 450 @ 20.00

The order matching engine 21 determines that the incoming Sell order ismarketable. It retrieves the best order, Order C. It compares the sizeof Order C (300 shares) to the size of the incoming order (450 shares).As the size of the incoming order exceeds the size of Order C, theorders cannot match according to the rules for Tracking LiquidityOrders.

The order matching engine 21 retrieves its next best order, Order E. Itcompares the size of Order E (200 shares) to the size of the incomingorder (450 shares). As the size of the incoming order exceeds the sizeof Order E, Order E cannot match either.

The order matching engine 21 retrieves its next best order, Order B. Itcompares the size of Order B (500 shares) to the size of the incomingorder (450 shares). As the size of the incoming order is less than thesize of Order B, Order B can fully intercept it. The order matchingengine 21 executes 450 shares of the incoming Sell order with Order B,completely filling the incoming Sell order. It cancels the remaining 50shares of Order B. The internal book looks like this after Order B isremoved:

Price point Order Details MaxPrice 20.00 Order C: Buy 300 20.00 Order E:Buy 200 20.00 Order D: Buy 600 20.01 19.99 Order A: Buy 400 19.99

As illustrated in this example, Tracking Liquidity Orders cannot beaggregated to intercept an incoming order. Instead, the order matchingengine retrieves the highest-ranked order with sufficient size to fullyexecute the incoming order. The size requirement trumps the timepriority of the resting Tracking Liquidity Orders. Although Order C andOrder E had time priority over Order B, Order B was allowed to stepahead of those orders due to its ability to meet the size requirement,which is a fundamental prerequisite for the execution of any TrackingLiquidity Order.

Example: Tracking Liquidity Orders in a Locked or Crossed Market

In this implementation of the invention, resting Tracking LiquidityOrders continue to peg to the NBBO even if the NBBO should become lockedor crossed. This is true regardless of whether the posting market center20 participates in the lock/cross or not. Additionally, in thisimplementation of the invention, Tracking Liquidity Orders are acceptedand activated even if the NBBO is already locked or crossed when theorder is received. If the NBBO is locked or crossed when an incomingorder is about to route, a Tracking Liquidity Order that can interceptthe incoming order will execute at the locked or crossed price.

In this example, Market Center A is alone at the NBBO with 200 @ $20.00to 300 @ $20.02. The internal book looks like this:

Bids Offers MarketA: 200 @ 20.00 MarketA: 300 @ 20.02 MarketB: 500 @19.98 MarketB: 200 @ 20.03The posting market center 20 receives the following orders:

-   -   Order A: Buy 300 @ 20.02, Tracking Liquidity    -   Order B: Sell 400 @ 19.99, Tracking Liquidity        The order matching engine 21 prices Order A at the current NBB,        $20.00. It prices Order B at the current NBO, $20.02. For        illustration purposes, in the examples below, the Tracking        Liquidity Orders are shown in “reverse-display” to indicate        their status as nondisplayed orders. As resident trading        interest has priority over away market interest at the same        price, the orders are shown ranked ahead of Away Market A.

The internal book looks like this:

Bids Offers Order A: 300 @ 20.00 Order B: 400 @ 20.02 MaxPrice = 20.02MinPrice = 19.99 MarketA: 200 @ 20.00 MarketA: 300 @ 20.02 MarketB: 500@ 19.98 MarketB: 200 @ 20.03As Tracking Liquidity Orders are not displayed to the marketplace, theNBBO remains unchanged.

-   -   Market Center B changes its offer to 200 @ 19.99, crossing        Market Center A. The NBBO is now crossed ($20.00 to $19.99).

The order matching engine detects the updated NBO of $19.99. Itretrieves Order B, determines that Order B's specified minimum limitprice allows it to be priced down to $19.99, and reprices Order B at theupdated NBO price of $19.99, following Market Center B into the cross.

The internal book looks like this:

Bids Offers Order A: 300 @ 20.00 Order B: 400 @ 19.99 ← MaxPrice = 20.02MinPrice = 19.99 MarketA: 200 @ 20.00 MarketB: 200 @ 19.99 ← MarketB:500 @ 19.98 MarketA: 300 @ 20.02

As the NBBO is now crossed, Order A and Order B are also crossed.However, by definition, Tracking Liquidity Orders can only executeagainst incoming orders that are about to route off the posting marketcenter 20. As neither Order A nor Order B can route, the orders cannotexecute against each other, even though their prices overlap. Thus, itis permissible for both orders to remain active in the internal bookeven though their prices are presently crossed.

The posting market center 20 receives the following order:

-   -   Order C: Buy 200 @ Market        As Market Orders are eligible for routing, and Tracking        Liquidity Sell Order B's size (400 shares) exceeds incoming Buy        Order C's size (200 shares), the order matching engine 21        matches Order B with Order C at the price of $19.99, the NBO. It        cancels the remaining 200 shares of Order B after the match        because Tracking Liquidity Orders can only execute once.

Example: Ranking of Tracking Liquidity Orders in the Directed OrderProcess

This example illustrates the priority of a Tracking Liquidity Ordercompared to a Market Maker's Directed Fill in an equities tradingenvironment. In this example, a Market Maker 31 a has a standinginstruction with the posting market center 20 that the order matchingengine 21 automatically generate a Directed Fill in response to amarketable Directed Order received from a permissioned user. For thepurposes of this example, a Directed Fill has a size and price specifiedby the Market Maker.

For this example, the internal book contains the following orders whenthe NBBO is $20.01 to $20.03:

-   -   Order A: Buy 1000 @ 20.00    -   Order B: Buy 8000 @ 20.00, Show Size=500, Reserve Size=7500    -   Order C: Buy 1000 @ 20.02, Tracking Liquidity Order        The current executable price of Order C is $20.01, the NBB        price. The internal book looks like this:

Price point Display Reserve Liquidity Discretion Tracking 20.02 20.01Order C: 1000 @ 20.01, MaxPrice = 20.02 20.00 Order A: Order B: 1000 @7500 @ 20.00 20.00 Order B: 500 @ 20.00

In this example, the following valid Directed Order is received by theposting market center 20 from a user who is permissioned to directorders to Market Maker MM1:

-   -   Sell 1000 @ 20.01, directed to Market Maker MM1

In this example, the Market Maker MM1 has a standing instruction withthe posting market center 20 to buy 2000 at $20.01. In this example, theorder matching engine 21, upon receiving the Directed Order for MarketMaker MM1, automatically generates a Directed Fill priced at $20.01, apenny better than the posting market center Best Bid ($20.00) and also apenny better than the NBB ($20.00).

Although Tracking Liquidity Order C can also trade at $20.01 and wasresting in the internal book before the Directed Fill was automaticallygenerated, the incoming order matches with the Directed Fill generatedon behalf of the Market Maker in the Directed Order Process. This isbecause the Directed Order Process has a higher priority for executionthan the Tracking Process. Directed Fills always have priority overTracking Liquidity Orders at the same price, without regard to timepriority.

In a different implementation of the Directed Order Process, the postingmarket center 20 may allow registered Market Makers to create a virtualbook of “Guarantee Orders” instead of using standing instructions todynamically generate Directed Fills. In such an implementation of theDirected Order Process, if Market Maker MM1 had a Guarantee Order to Buy1000 at $20.01 in its virtual book, the results would be essentially thesame as described above. An incoming Directed Order to Sell 1000 at$20.01 with Market Maker MM1 would match the Guarantee Order, not theTracking Liquidity Order, because the Directed Order Process executesfirst.

As illustrated in these examples, a Directed Order is executed againstthe Directed Fill or the Virtual Guarantee Order of the designatedMarket Maker ahead of a resting Tracking Liquidity Order at the sameprice.

Example: Ranking of a Tracking Liquidity Order Compared to Market MakerQuotes in the Lead Market Maker Guarantee Process

This example illustrates the priority of a Tracking Liquidity Ordercompared to Market Maker Quotes 33 in an options trading environment. Inthis example, Market Makers 31 may send quotes only for issues in whichthey are assigned. In this example, the internal book contains thefollowing orders when the NBBO is $2.00 to $2.10:

-   -   Order A: Buy 100 @ 1.95    -   Order B: Buy 800 @ 1.95, Show Size=50, Reserve Size=750    -   Order C: Buy 100 @ 2.05, Tracking Liquidity        The internal book looks like this:

Price point Display Reserve Liquidity Discretion Tracking 2.05 2.00Order C: 100 @ 2.00, MaxPrice = 2.05 1.95 Order A: Order B: 100 @ 1.95750 @ 1.95 Order B: 50 @ 1.95

In this example, the Market Maker Quote Book 33 includes the followingbids, where LMM 31 a is the Lead Market Maker, and MM2 and MM3 areregular Market Makers. All three bids were received after the orderswere already stored in the internal book. In this example, the quotesare prioritized according to their timestamps in the sequence shownbelow:

Market Maker ID Bids MM2 Bid 200 @ 2.00 LMM Bid 300 @ 2.00 MM3 Bid 300 @2.00

The NBBO in this example is 2.00 to 2.10 (800×800). The posting marketcenter 20 receives the following order:

-   -   Sell 500 @ 2.00

Tracking Liquidity Order C has the same current executable price ($2.00)as the three Market Maker bids ($2.00), and also has time priority.However, as Lead Market Maker LMM is quoting at the NBB ($2.00), LMM iseligible to trade in the Lead Market Maker Guarantee Process. LMM isentitled to step ahead of MM2 to trade up to a specified guaranteedpercentage (e.g., 40% in this example). LMM is also entitled to tradeahead of Tracking Liquidity Order C as only displayed orders with timepriority are eligible for execution in the Lead Market Maker GuaranteeProcess, and Order C is not displayed. When the order matching engine 21determines that a quote is marketable, it automatically generates anorder on behalf of that quote. The incoming sell order matches 200contracts (40% of 500 contracts) against LMM at $2.00 in this example.The internal book remains unchanged.

The Market Maker Quote Book now looks like this:

Market Maker ID Bids MM2 Bid 200 @ 2.00 LMM Bid 100 @ 2.00 MM3 Bid 300 @2.00

After the incoming order trades in the Lead Market Maker GuaranteeProcess, its remaining 300 contracts trade according to normalprice/time priority rules in the Display Process:

-   -   200 contracts match Market Maker MM2's quote @ 2.00, as MM2 has        time priority over LMM and MM3; and    -   100 contracts match Market Maker LMM's quote @ 2.00, as LMM has        time priority over MM3

As the incoming order is completely matched in the Display Process, noportion of the incoming order is available to execute with Order C inthe Tracking Process. Orders in the Tracking Process cannot executeuntil all orders and quotes at the same price have executed first in theLead Market Maker Guarantee Process, the Display Process, the ReserveProcess, the Liquidity Process, and the Discretionary Process. TheTracking Process has the lowest execution priority except for theRouting Process.

Example: Ranking of Passive Liquidity Order Compared to Market MakerQuotes in the Directed Order Process

In this example, in an options trading environment, a Market Maker whois not the Lead Market Maker is granted the same privileges forguaranteed participation according to the rules of the Directed OrderProcess. In this example, the internal book looks as it did at thebeginning in the Lead Market Maker Guarantee Process example above, andthe NBBO is still $2.00 to $2.10:

Price point Display Reserve Liquidity Discretion. Tracking 2.05 2.00Order C: 100 @ 2.00, MaxPrice = 2.05 1.95 Order A: Order B: 100 @ 1.95750 @ 1.95 Order B: • 50 @ 1.95

The Market Maker Quote Book includes the same following bids, where LMMis the Lead Market Maker and MM2 and MM3 are regular Market Makers. Allthree bids were received after the orders were already stored in theinternal order book. In this example also, the quotes are prioritizedaccording to their timestamps as follows:

Market Maker ID Bids MM2 Bid 200 @ 2.00 LMM Bid 300 @ 2.00 MM3 Bid 300 @2.00

The NBBO is $2.00 to $2.10 (800×800). In this example, the DirectedOrder Process is operable on the posting market center 20. An ordersending firm 26 b is permissioned to direct orders to the Market Makerfirm MM3 31b, and sends the following Directed Order to the postingmarket center 20:

-   -   Sell 500 @ 2.00, directed to Market Maker MM3

Tracking Liquidity Order C has the same current executable price ($2.00)as the three Market Maker bids ($2.00), and also has time priority.However, as designated Market Maker MM3 is quoting at the NBB ($2.00),MM3 is eligible to trade in the Directed Order Process. MM3 is entitledto step ahead of MM2 and LMM to trade up to a specified guaranteedpercentage (e.g., 40% in this example). MM3 is also entitled to tradeahead of Tracking Liquidity Order C as the Directed Order Process hasexecution priority over the Tracking Process. The incoming sell ordermatches 200 contracts (40% of 500 contracts) against MM3 at $2.00 inthis example. The internal book remains unchanged.

The Market Maker Quote Book now looks like this:

Market Maker ID Bids MM2 Bid 200 @ 2.00 LMM Bid 300 @ 2.00 MM3 Bid 100 @2.00

After the incoming order trades in the Directed Order Process, itsremaining 300 contracts trade in the Display Process according to normalprice/time priority rules:

-   -   200 contracts match Market Maker MM2's quote @ 2.00; and    -   100 contracts match Market Maker LMM's quote @ 2.00

As illustrated in the preceding examples, in this embodiment of theinvention, a Market Maker quoting at the NBBO always trades ahead of aTracking Liquidity Order at the same price. A Market Maker quote at theNBBO may execute in the Lead Market Maker Guarantee Process, theDirected Order Process, and/or the regular Display Process. All theseprocesses have priority over the Tracking Process. A Tracking LiquidityOrder will execute ahead of a Market Maker quote only if the TrackingLiquidity Order's current execution price is at the NBBO and the MarketMaker's quote is inferior to the NBBO.

It should be noted that the preceding examples are only by way ofexplanation in regard to the priority of Tracking Liquidity Orders incomparison to Market Maker quotes, Directed Fills, Guarantee Orders, ortheir functional equivalents. The Directed Order Process and/or the LeadMarket Maker Guarantee Process may be implemented in a manner thatdiffers from what is described in these examples, without altering thefundamental principle that a Market Maker quote (or its functionalcounterpart) always executes ahead of a Tracking Liquidity Order at thesame price.

Incoming Tracking Liquidity Buy Order is Received

FIG. 2 illustrates the process implemented by the order matching engine21 when a trader at an order sending firm 26 sends a Tracking LiquidityBuy Order to the posting market center 20. At step 100, a new TrackingLiquidity Order is received by the order matching engine 21. The processfirst stores the limit price specified by the trader (“MaxPrice”) on theincoming Tracking Liquidity Buy Order, as indicated at step 102.Although the current execution price of the Tracking Liquidity Buy Orderwill change during its lifetime, its price is capped by the specified“MaxPrice,” which never changes. At step 104, the process retrieves theNational Best Bid (“NBB”). At step 106, the process determines the pricethat should be presently assigned to the incoming Tracking Liquidity BuyOrder. It does this by comparing the MaxPrice to the NBB. If theMaxPrice is less than the NBB, the process sets the current executableprice (“CurrentBuyPrice”) of the incoming Tracking Liquidity Buy Orderequal to the MaxPrice, as indicated at step 108. On the other hand, ifthe MaxPrice is greater than or equal to the NBB, then the process setsthe current executable price (“CurrentBuyPrice”) of the incomingTracking Liquidity Buy Order equal to the NBB, as indicated at step 110.Finally at step 112, the Tracking Liquidity Buy Order is inserted in theTracking Process level of the internal book, in price/time priority,according to its CurrentBuyPrice, as indicated at step 112. It isimportant to note that the order is ranked according to its currentexecutable price, and not according to its maximum executable price. Theprocess is then complete as indicated at step 114.

Incoming Sell Order May be Executable Against a Resting TrackingLiquidity Buy Order

Referring to FIG. 4 , an embodiment of the process for when the postingmarket center 20 receives an incoming ‘regular’ (i.e., non-TrackingLiquidity) Sell Order is illustrated (the process for an incomingTracking Liquidity Sell Order is illustrated in FIG. 3 instead). At step120, the posting market center 20 receives a regular incoming SellOrder. The order matching engine 21 process is activated.

At step 122, the process retrieves the best (highest-priced) Buy Orderon the posting market center. The process then compares the price of theretrieved Buy Order to the price of the incoming Sell Order, asindicated at step 124. (In the case where the retrieved Buy Order is aTracking Liquidity Order, then the price of the retrieved Buy Order thatis evaluated is the Tracking Liquidity Order's CurrentBuyPrice, not itsMaxPrice.) If the price of the incoming Sell Order is not less than orequal to the price of the retrieved Buy Order, the orders cannot match,so at step 134, the incoming Sell Order is processed according to therules that govern the order type, e.g., it may be included in theinternal book, routed to a superior away market, or canceled because itcannot be executed immediately. The process terminates at step 142.

Referring back to step 124, if the price of the incoming Sell Order isless than or equal to the retrieved Buy Order price, then the processproceeds to step 126, where it retrieves the NBB. At step 128, theprocess checks whether the retrieved Buy Order is at or better than theNBB. (In the case where the retrieved Buy Order is a Tracking LiquidityOrder, the order is at the NBB if its CurrentBuyPrice is equal to theNBB.) At step 130, the process determines if the retrieved Buy Order isa Tracking Liquidity Order. If it is not, then the incoming Sell Orderand the retrieved Buy Order are matched with one another according tothe trading rules that govern their respective order types, as indicatedat step 138. The process then checks to determine if the incoming SellOrder still has quantity remaining at step 140. If the incoming SellOrder does have quantity remaining, the process continues to step 144 toretrieve the next best Buy Order and returns to step 124 to repeat theprocess of determining whether the incoming Sell Order can execute withthe next best retrieved Buy Order or not. On the other hand, if theincoming Sell Order has been completely filled, then the process stopsas indicated at step 142.

Referring back to step 130, if the retrieved Buy Order is a TrackingLiquidity Order, then the process determines if the incoming order is anorder type that is eligible for routing at step 132. If it is, then aTracking Liquidity Buy Order could possibly trade against the incomingSell Order and prevent it from routing. If the incoming Sell Order typeis not routable, then a Tracking Liquidity Buy Order cannot tradeagainst it, and the incoming Sell Order is processed according to therules that govern the order type (e.g., it may be canceled, or it may berepriced less aggressively), as indicated at step 134, and the processterminates at step 142.

Referring back to step 132, if, however, the incoming Sell Order type iseligible to be routed, then the process proceeds to the “Match TL BuyElse Route” process, as indicated at step 136, and described in detailbelow, to determine whether the retrieved Tracking Liquidity Buy Order,or alternatively another Tracking Liquidity Buy Order at the same price,can trade against the incoming Sell Order, or if the incoming Sell Ordermust be routed to an away market instead. After the “Match TL Buy ElseRoute” process is complete, the process stops as indicated at step 142.

Referring to FIG. 6 , the “Match TL Buy Else Route” process referred toabove is illustrated as the process is initiated at step 150. At step152, the process compares the Leaves quantity of the incoming Sell Order(which is its full order size if it did not partially execute prior tothis point) to the size of the retrieved Tracking Liquidity Buy Order.By definition, a Tracking Order can only execute against an incomingorder whose size is equal or lower, as it must fully intercept the orderto prevent even a single share or contract from routing. Therefore, ifthe retrieved Tracking Liquidity Buy Order has sufficient size to matchthe full Leaves quantity of the incoming Sell Order, then the ordersmatch each other at step 154, and the trade is priced at the NBB. Atstep 156, the process determines whether the Tracking Liquidity BuyOrder still has any remaining quantity after the match, and if it does,it cancels its remaining quantity at step 158. The reason for this isbecause a Tracking Liquidity Order can only match once according to thebusiness rules for the order type. The process stops at step 170 afterany remaining size is canceled if necessary.

Referring back to step 152, if the retrieved Tracking Liquidity BuyOrder does not have sufficient size to match the full Leaves quantity ofthe incoming Sell Order, then the process continues to step 159, whereit checks to see if any additional Tracking Liquidity Buy Orders exist.If additional Tracking Liquidity Buy Orders do exist, then the processcontinues to step 160, where it retrieves the next best TrackingLiquidity Buy Order. At step 162, the process checks to see if the nextbest Tracking Liquidity Buy Order is eligible to execute by evaluatingits CurrentBuyPrice. As previously described, it is possible that aTracking Liquidity Buy Order's price will be inferior to the NBB if ithas already been capped at its specified limit price (MaxPrice). If thenext best Tracking Liquidity Buy Order is priced at the NBB, then theprocess returns to step 152, where it checks to see if this retrievedTracking Liquidity Buy Order has sufficient size to intercept theincoming Sell Order, even though the previous Tracking Liquidity BuyOrder did not. If this Tracking Liquidity Buy Order does have sufficientsize, then the orders match as described at step 154. However, if thisTracking Liquidity Buy Order does not have sufficient size either, thenthe process continues to step 159, where. it checks to see whetheradditional Tracking Liquidity Buy Orders exist. If additional TrackingLiquidity Buy Orders do exist, then the process continues to step 160,where it retrieves the next best Tracking Liquidity Buy Order.

The process continues in this fashion until it either retrieves amarketable Tracking Liquidity Buy Order with sufficient size, or elsefailing that and having evaluated each Tracking Liquidity Buy Orderwhose current execution price is at the NBB, must proceed to step 164.At step 164, the process routes the incoming Sell Order to one or moreaway markets at the NBB, according to the normal rules that govern therouting of the order type. After the incoming Sell Order has satisfiedthe away market/s at the NBB, if the process determines at step 166 thatthe order still has quantity remaining, it is processed at step 168according to the rules that govern the order type, e.g., the remainderof the incoming Sell order might be posted to the book or else mightcontinue to wait for an updated NBB. After the incoming Sell Order hascompleted, the process terminates at step 170.

Repricing Tracking Liquidity Buy Orders when the NBB Changes

Referring to FIG. 8 , when the process receives or determines a new NBBprice at step 300, it checks to see if any Tracking Liquidity Buy Ordersmust be repriced. As explained and illustrated earlier in this document,the internal book can contain a multiplicity of Tracking LiquidityOrders with different executable prices, as some Buy orders have alreadybeen capped at their specified “MaxPrice” value and are no longer at theNBB. While only Tracking Liquidity Buy Orders priced at the NBB areeligible for trading, all Tracking Liquidity Buy Orders may need to bereevaluated for possible repricing when the NBB changes. If the new NBBis the same as a Tracking Liquidity Buy Order's current executableprice, then no repricing is necessary and the order remains at itscurrent price. However, if the new NBB price is lower than a TrackingLiquidity Buy Order's current executable price, then the order mustalways be repriced lower (i.e., less aggressively) at the new NBB.Similarly, if the new NBB price is higher than a Tracking Liquidity BuyOrder's current executable price, then the order can potentially bepriced higher (i.e., more aggressively), but only up to the lesser ofits MaxPrice and the new NBB price.

At step 302, the process retrieves the highest-priced Tracking LiquidityBuy Order, and at step 304, the process then compares the price of theretrieved Tracking Liquidity Buy Order to the new NBB price. If the newNBB is less than the current executable price (“CurrentBuyPrice”) of theretrieved Tracking Liquidity Buy Order, then the retrieved order must berepriced less aggressively. To this end, the process sets the value ofthe CurrentBuyPrice of the Tracking Liquidity Buy Order equal to the newNBB, as indicated at step 312. If, on the other hand, at step 304, thenew NBB is not less than the value of the CurrentBuyPrice of theretrieved Tracking Liquidity Buy Order, then the process continues tostep 306, where it checks to see if the new NBB is greater than theCurrentBuyPrice of the retrieved Tracking Liquidity Buy Order. If theNBB is not greater than the CurrentBuyPrice, this means the prices areequal, and the order does not need to be repriced. In this case, theprocess stops at step 308, because if this retrieved Tracking LiquidityBuy Order does not need to be repriced, then other lower-rankingTracking Liquidity Buy Orders will not need to be repriced either.

Returning to step 306, if on the other hand, the NBB is indeed greaterthan the retrieved Tracking Liquidity Buy Order's CurrentBuyPrice, thenthe retrieved order may potentially be repriced more aggressively. Todetermine how aggressively it can be repriced, the process mustdetermine which price is lower, the MaxPrice or the NBB price, and mustchoose the lower of the two prices. To this end, at step 310 it comparesthe NBB to the MaxPrice value. If the NBB is not greater than theretrieved order's MaxPrice value, then the process proceeds to step 312where it sets the value of the CurrentBuyPrice of the Tracking LiquidityBuy Order equal to the NBB price. If, on the other hand, the processdetermines at step 310 that the NBB is greater than the MaxPrice value,then the process continues to step 313, where it checks if the order isalready priced as high as it can be, i.e., if the CurrentBuyPrice isequal to the MaxPrice value. If the order is not yet priced at itsMaxPrice, then the process sets the CurrentBuyPrice of the TrackingLiquidity Order equal to the MaxPrice value as indicated at step 314.

After repricing the CurrentBuyPrice of the retrieved Tracking LiquidityBuy Order, the process continues to step 316, where it inserts theTracking Liquidity Buy Order in the Tracking Process level of theinternal book according to the price/time priority of its newCurrentBuyPrice value. If, on the other hand, the Tracking Liquidity BuyOrder's CurrentBuyPrice did not change because it was already at itsMaxPrice, as determined at step 313, then the order does not need to bere-ranked in the internal book. The process continues to step 318, whereit checks to see whether any additional Tracking Liquidity Buy Ordersexist. If no additional orders exist, then the process is completed atstep 320 as shown. If, on the other hand, additional orders do exist,then the process retrieves the next best Tracking Liquidity Buy Order atstep 322, and returns to step 304 and repeats the process describedabove to determine if this next order should also be repriced. Theprocess continues in this fashion until all Tracking Liquidity BuyOrders that require repricing are completed.

Incoming Tracking Liquidity Sell Order is Received

FIG. 3 illustrates the process implemented by the order matching engine21 when a trader at an order sending firm 26 sends a Tracking LiquiditySell Order to the posting market center 20. At step 200, a new TrackingLiquidity Order is received by the order matching engine 21. The processfirst stores the limit price specified by the trader (“MinPrice”) on theincoming Tracking Liquidity Sell Order, as indicated at step 202.Although the current execution price of the Tracking Liquidity SellOrder will change during its lifetime, its price is capped by thespecified “MinPrice,” which never changes. At step 204, the processretrieves the National Best Offer (“NBO”). At step 206, the processdetermines the price that should be presently assigned to the incomingTracking Liquidity Sell Order. It does this by comparing the MinPrice tothe NBO. If the MinPrice is greater than the NBO, the process sets thecurrent price (“CurrentSellPrice”) of the incoming Tracking LiquiditySell Order equal to the MinPrice, as indicated at step 208. On the otherhand, if the MinPrice is less than or equal to the NBO, then the processsets the current price (“CurrentSellPrice”) of the incoming TrackingLiquidity Sell Order equal to the NBO, as indicated at step 210. Finallyat step 212, the Tracking Liquidity Sell Order is inserted in theTracking Process level of the internal book, in price/time priority,according to its CurrentSellPrice, as indicated at step 212. Note thatthe order is ranked according to its current executable price, and notaccording to its minimum executable price. The process is then completeas indicated at step 214.

Incoming Buy Order May be Executable Against a Resting TrackingLiquidity Sell Order

Referring to FIG. 5 , an embodiment of the process for when the postingmarket center 20 receives an incoming ‘regular’ (i.e., non-TrackingLiquidity) Buy Order is illustrated (the process for an incomingTracking Liquidity Buy Order is illustrated in FIG. 2 instead). At step220, the posting market center 20 receives a regular incoming Buy Order.The order matching engine 21 process is activated.

At step 222, the process retrieves the best (lowest-priced) Sell Orderon the posting market center. The process then compares the price of theretrieved Sell Order to the price of the incoming Buy Order, asindicated at step 224. (In the case where the retrieved Sell Order is aTracking Liquidity Order, then price of the retrieved Sell Order that isevaluated is the Tracking Liquidity Order's CurrentSellPrice, not itsMinPrice.) If the price of the incoming Buy Order is not greater than orequal to the price of the retrieved Sell Order, then the orders cannotmatch, and at step 234, the incoming Buy Order is processed according tothe rules that govern the order type, e.g., it may be included in theinternal book, routed to a superior away market, or canceled because itcannot be executed immediately. The process terminates at step 242.

Referring back to step 224, if the price of the incoming Buy Order isgreater than or equal to the retrieved Sell Order price, then theprocess proceeds to step 226, where it retrieves the NBO. At step 228,the process checks whether the retrieved Sell Order is at or better thanthe NBO. (In the case where the retrieved Sell Order is a TrackingLiquidity Order, the order is at the NBO if its CurrentSellPrice isequal to the NBO.) At step 230, the process determines if the retrievedSell Order is a Tracking Liquidity Order. If it is not, then theincoming Buy Order and the retrieved Sell Order are matched with oneanother according to the trading rules that govern their respectiveorder types, as indicated at step 238. The process then checks todetermine if the incoming Buy Order still has quantity remaining at step240. If the incoming Buy Order does have quantity remaining, the processcontinues to step 244 to retrieve the next best Sell Order and returnsto step 224 to repeat the process of determining whether the incomingBuy Order can execute with the next best retrieved Sell Order or not. Onthe other hand, if the incoming Buy Order has been completely filled,then the process stops as indicated at step 242.

Referring back to step 230, if the retrieved Sell Order is a TrackingLiquidity Order, then the process determines if the incoming order is anorder type that is eligible for routing at step 232. If it is, then aTracking Liquidity Sell Order could possibly trade against the incomingBuy Order and prevent it from routing. If the incoming Buy Order type isnot routable, then Tracking Liquidity Sell Orders cannot trade againstit, and the incoming Buy Order is processed according to the rules thatgovern the order type (e.g., it may be canceled, or it may be repricedless aggressively), as indicated at step 234, and the process terminatesat step 242.

Referring back to step 232, if, however, the incoming Buy Order type iseligible to be routed, then the process proceeds to the “Match TL SellElse Route” process, as indicated at step 236, and described in detailbelow, to determine whether the retrieved Tracking Liquidity Sell Order,or another Tracking Liquidity Sell Order at the same price, can tradeagainst the incoming Buy Order, or if the incoming Buy Order must berouted to an away market instead. After the “Match TL Sell Else Route”process is complete, the process stops as indicated at step 242.

Referring to FIG. 7 , the “Match TL Sell Else Route” process referred toabove is illustrated as the process is initiated at step 250. At step252, the process compares the Leaves quantity of the incoming Buy Order(which is its full order size if it did not partially execute prior tothis point) to the size of the retrieved Tracking Liquidity Sell Order.By definition, a Tracking Order can only execute against an incomingorder whose size is equal or lower, as it must fully intercept the orderto prevent even a single share or contract from routing. Therefore, ifthe retrieved Tracking Liquidity Sell Order has sufficient size to matchthe full Leaves quantity of the incoming Buy Order, then the ordersmatch each other at step 254, and the trade is priced at the NBO. Atstep 256, the process determines whether the Tracking Liquidity SellOrder still has any remaining quantity after the match, and if it does,it cancels its remaining quantity at step 258. The reason for this isbecause a Tracking Liquidity Order can only match once. The processstops at step 270 after any remaining size is canceled if necessary.

Referring back to step 252, if the retrieved Tracking Liquidity SellOrder does not have sufficient size to match the full Leaves quantity ofthe incoming Buy Order, then the process continues to step 259, where itchecks to see if any additional Tracking Liquidity Sell Orders exist. Ifadditional Tracking Liquidity Sell Orders do exist, then the processcontinues to step 260, where it retrieves the next best TrackingLiquidity Sell Order. At step 262, the process checks to see if the ifthe next best Tracking Liquidity Sell Order is eligible to execute byevaluating its CurrentSellPrice. As previously described, it is possiblethat a Tracking Liquidity Sell Order's price will be inferior to the NBOif it has already been capped at its specified limit price (MinPrice).If the next best Tracking Liquidity Sell Order is priced at the NBO,then the process returns to step 252, where it checks to see if thisretrieved Tracking Liquidity Sell Order has sufficient size to interceptthe incoming Buy Order, even though the previous Tracking Liquidity SellOrder did not. If this retrieved Tracking Liquidity Sell Order does havesufficient size, then the orders match, as described above, at step 254.However, if this retrieved Tracking Liquidity Sell Order does not havesufficient size either, then the process continues to step 259, where itchecks to see whether additional Tracking Liquidity Sell Orders exist.If additional Tracking Liquidity Sell Orders do exist, then the processcontinues to step 260, where it retrieves the next best TrackingLiquidity Sell Order.

The process continues in this fashion until it either retrieves amarketable Tracking Liquidity Sell Order with sufficient size, or elsefailing that and having evaluated each Tracking Liquidity Sell Orderwhose current execution price is at the NBO, must proceed to step 264.At step 264, the process routes the incoming Buy Order to one or moreaway markets at the NBO, according to the normal rules that govern therouting of the order type. After the incoming Buy Order has satisfiedthe away market/s at the NBO, if the process determines at step 266 thatthe order still has quantity remaining, it is processed at step 268according to the rules that govern the order type, e.g., the remainderof the incoming Buy order might be posted to the book or else mightcontinue to wait for an updated NBO. After the incoming Buy Order hascompleted, the process terminates at step 270.

Repricing Tracking Liquidity Sell Orders when the NBO Changes

Referring to FIG. 9 , when the process receives or determines a new NBOat step 350, it checks to see if any Tracking Liquidity Sell Orders mustbe repriced. As explained and illustrated earlier in this document, theinternal book can contain a multiplicity of Tracking Liquidity Orderswith different executable prices, as some Sell orders have already beencapped at their specified “MinPrice” value and are no longer at the NBO.While only Tracking Liquidity Sell Orders priced at the NBO are eligiblefor trading, all Tracking Liquidity Sell Orders may need to bereevaluated for possible repricing when the NBO changes. If the new NBOis the same as a Tracking Liquidity Sell Order's current executableprice, then no repricing is necessary and the order remains at itscurrent price. However, if the new NBO price is higher than a TrackingLiquidity Sell Order's current executable price, then the order mustalways be repriced higher (i.e., less aggressively) at the new NBO.Similarly, if the new NBO price is lower than a Tracking Liquidity SellOrder's current executable price, then the order can potentially bepriced lower (i.e., more aggressively), but only down to the greater ofits MinPrice and the new NBO price.

At step 352, the process retrieves the lowest-priced Tracking LiquiditySell Order, and at step 354, the process then compares the price of theretrieved Tracking Liquidity Sell Order to the new NBO price. If the newNBO is greater than the current executable price (“CurrentSellPrice”) ofthe retrieved Tracking Liquidity Sell Order, then the retrieved ordermust be repriced less aggressively. To this end, the process sets thevalue of the CurrentSellPrice of the Tracking Liquidity Sell Order tothe new NBO, as indicated at step 362. If, on the other hand, at step354, the new NBO is not greater than the value of the CurrentSellPriceof the retrieved Tracking Liquidity Sell Order, then the processcontinues to step 356, where it checks to see if the new NBO is lessthan the CurrentSellPrice of the retrieved Tracking Liquidity SellOrder. If the NBO is not less than the CurrentSellPrice, this means theprices are equal, and the order does not need to be repriced. In thiscase, the process stops at step 358, because if this retrieved TrackingLiquidity Sell Order does not need to be repriced, then otherlower-ranking Tracking Liquidity Sell Orders will not need to berepriced either.

Returning to step 356, if on the other hand, the NBO is indeed lowerthan the retrieved Tracking Liquidity Sell Order's CurrentSellPrice,then the retrieved order may potentially be repriced more aggressively.To determine how aggressively it can be repriced, the process mustdetermine which price is higher, the MinPrice or the NBO price, and mustchoose the higher of the two prices. To this end, at step 360 itcompares the NBO to the MinPrice value. If the NBO is not lower than theretrieved order's MinPrice value, then the process proceeds to step 362where it sets the value of the CurrentSellPrice of the TrackingLiquidity Sell Order equal to the NBO price. If, on the other hand, theprocess determines at step 360 that the NBO is lower than the MinPricevalue, then the process continues to step 363, where it checks if theorder is already priced as low as it can be, i.e., if theCurrentSellPrice is equal to the MinPrice value. If the order is not yetpriced at its MinPrice, then the process sets the CurrentSellPrice ofthe Tracking Liquidity Order equal to the MinPrice value as indicated atstep 364.

After repricing the CurrentSellPrice of the retrieved Tracking LiquiditySell Order, the process continues to step 366, where it inserts theTracking Liquidity Sell Order in the Tracking Process level of theinternal book according to the price/time priority of its newCurrentSellPrice value. If, on the other hand, the Tracking LiquiditySell Order's CurrentSellPrice did not change because it was already atits MinPrice, as determined at step 363, then the order does not need tobe re-ranked in the internal book. The process continues to step 368,where it checks to see whether any additional Tracking Liquidity SellOrders exist. If no additional orders exist, then the process iscompleted at step 370 as shown. If, on the other hand, additional ordersdo exist, then the process retrieves the next best Tracking LiquiditySell Order at step 372, and returns to step 354 and repeats the processdescribed above to determine if this next order should also be repriced.The process continues in this fashion until all Tracking Liquidity SellOrders that require repricing are completed.

Examples of how Tracking Liquidity Orders of this embodiment operate areprovided below. It should be understood that the order and quote pricesand sizes discussed in these examples are by way of example only toillustrate how the process of an embodiment of the invention handlesTracking Liquidity Orders. Tracking liquidity order behavior is notlimited to these examples. For illustration purposes, in the examplesbelow, the Tracking Liquidity Orders are shown in “reverse-display” toindicate their status as nondisplayed orders.

Example 1: Incoming Tracking Liquidity Buy Order is Posted

In this example, the NBBO is $20.00 to $20.03 and an away market, MarketCenter A, is quoting $20.00 to $20.03. The following buy orders areposted in the internal book:

-   -   Order 1: Buy 8000 @ 20.00, Show size=500, Reserve size=7500    -   Order 2: Buy 1000 @ 20.00    -   Order 3: Buy 300 @ 19.99    -   Order 4: Sell 600 @ 20.04

The internal order book looks like this:

Bids Offers Order 1: 500 @ 20.00 MarketA: 400 @ 20.03 Show size = 500,Reserve size = 7500 Order 2: 1000 @ 20.00 Order 4: 600 @ 20.04 MarketA:700 @ 20.00 Order 3: 300 @ 19.99

The public order book, which only shows disclosed shares, looks likethis:

Bids Offers Posting Market Center 1500 @ 20.00 Posting Market Center 600@ 20.04 Posting Market Center 300 @ 19.99

The posting market center 20 receives the following order:

-   -   Order 5: Buy 400 @ 20.02, Tracking Liquidity

The process is activated and, referring to FIG. 2 , at step 102, theprocess stores the specified limit price on incoming Tracking LiquidityBuy Order 5 ($20.02) as the value of its “MaxPrice,” the highest priceto which Buy Order 5 will follow the NBB. The process continues to step104, where it retrieves the NBB ($20.00). The process compares theMaxPrice of Buy Order 5 ($20.02) to the NBB ($20.00) at step 106. Inthis case, the MaxPrice is higher than the NBB, so the process sets thecurrent executable price of the Tracking Liquidity Buy Order (i.e. the“CurrentBuyPrice” parameter) to the NBB price ($20.00) at step 110. Theprocess inserts Tracking Liquidity Buy Order 5 into the Tracking Processsublevel of the internal book at step 112, where it is ranked accordingto the price/time priority of its CurrentBuyPrice ($20.00). At the priceof $20.00, Order 1 and Order 2 both have priority over TrackingLiquidity Buy Order 5, i.e., Tracking Liquidity Order 5 is ranked lastamong the orders that can trade at $20.00. The process is completed atstep 114 as indicated.

The internal book looks like this:

Bids Offers Order 1: 500 @ 20.00 MarketA: 400 @ 20.03 Show size = 500,Reserve size = 7500 Order 2: 1000 @ 20.00 Order 4: 600 @ 20.04 Order 5:400 @ 20.00, MaxPrice = 20.02 Tracking Process MarketA: 700 @ 20.00Order 3: 300 @ 19.99

As Tracking Liquidity Orders are not displayed, the public order bookremains unchanged and still looks like this:

Bids Offers Posting Market Center 1500 @ 20.00 Posting Market Center 600@ 20.04 Posting Market Center 300 @ 19.99

Example 2: Tracking Liquidity Buy Order Cannot Intercept Incoming SellOrder

The posting market center 20 receives the following order:

-   -   Order 6: Sell 9500 @ 20.00

At step 122 in FIG. 4 , the process retrieves the highest-priced restingbuy order, which is Buy Order 1 in this example. The process comparesthe price of incoming Sell Order 6 with retrieved Buy Order 1, at step124, and determines their prices are equal. As the prices are equal, theprocess retrieves the NBB ($20.00) at step 126, and compares the priceof retrieved Buy Order 1 ($20.00) to the NBB at step 128. As the pricesare equal and the orders are eligible to match, the process checks tosee if retrieved Buy Order 1 is a Tracking Liquidity Order at step 130.In this example, Buy Order 1 is not a Tracking Liquidity Order, so theprocess matches the 500 disclosed shares (i.e. the Show size) of Order 1in the Display process according to the normal rules for matchingReserve Orders, as indicated at step 138.

The process, then, at step 140, determines that incoming Sell Order 6still has 9000 shares available to trade, so it retrieves the next bestbuy order, which is Order 2, at step 144. The process then returns tostep 124, where it compares the price of incoming Sell Order 6 ($20.00)with retrieved Buy Order 2 ($20.00) at step 124. Again, as the pricesare equal, the process retrieves the NBB (still $20.00) at step 126 anddetermines that Buy Order 2 is at the NBB at step 128. The process thenchecks to see if retrieved Buy Order 2 is a Tracking Liquidity Order atstep 130. In this example, Buy Order 2 is not a Tracking LiquidityOrder, so the process matches the 1000 shares of Order 2 in the Displayprocess according to normal limit-price matching rules, as indicated atstep 138. Order 2 is completely depleted, and is removed from theinternal book.

The process determines that incoming Sell Order 6 still has 8000 sharesavailable to trade at step 140. As there are no more disclosed orders tobuy at $20.00 in the Display process, it moves to the Working processand retrieves Buy Order 1's 7500 reserve shares at $20.00, at step 144.As before, the process compares the price of incoming Sell Order 6 withretrieved Buy Order 1 at step 124. As the prices are again equal, theprocess retrieves the NBB (still $20.00) at step 126 and determines thatBuy Order 1 is at the NBB at step 128. At step 130, the process checkswhether Buy Order 1 is a Tracking Liquidity Order. As noted before, BuyOrder 1 is not a Tracking Liquidity Order, so the process matches the7500 reserve shares of Order 1 in the Working process according tonormal rules for matching Reserve Orders, again as indicated at step138. Buy Order 1 is completely depleted, and is removed from theinternal book.

The process then determines that incoming Sell Order 6 still has 500shares available to trade at step 140. As there are no additional sharesat $20.00 in the Working Process, at step 144, the process moves to theTracking Process and retrieves Buy Order 5. The process, as before,returns to step 124 and compares the price of incoming Sell Order 6($20.00) with retrieved Buy Order 5. As Buy Order 5 is a TrackingLiquidity Order, its price ($20.00) is the value stored as itsCurrentBuyPrice. The prices in this example are equal as well. Theprocess retrieves the NBB (still $20.00) at step 126, and determinesthat retrieved Buy Order 5 is at the NBB at step 128. The process thenchecks to see if retrieved Buy Order 5 is a Tracking Liquidity Order instep 130. In this example, Buy Order 5 is a Tracking Liquidity Order,which means that it can only execute with order types that are eligibleto be routed off the posting market center 20. At step 132, the processdetermines that incoming Sell Order 6, as a regular limit-priced order,is eligible to route, and is therefore eligible to match Buy Order 5according to the rules for the order types. However, it can matchTracking Liquidity Buy Order 5 only if it complies with the ‘sizeprevents routing’ rule—namely that the number of remaining shares of theincoming order needs to be less than or equal to the number of sharesavailable to trade in the Tracking Liquidity Order to prevent routing.The process invokes the routine to determine if the incoming order canbe fully intercepted, as indicated at step 136.

Referring to FIG. 6 , the process compares the size of TrackingLiquidity Buy Order 5 (400 shares) to the remaining shares of incomingSell Order 6 (500 shares) at step 152. As the Leaves quantity ofincoming Sell Order 6 exceeds the size of Tracking Liquidity Buy Order 5in this example, Order 5 is not large enough to prevent Order 6 fromrouting. As a result, the process determines that Tracking Liquidity BuyOrder 5 cannot trade, and the process bypasses Tracking Liquidity BuyOrder 5 and continues to step 159, where it checks to see if there areany additional Tracking Liquidity Buy Orders that could possiblyinteract with incoming Sell Order 6 instead. As none exist, the processlooks for away market bids whose prices overlap with incoming Sell Order6, as indicated at step 164, and finds Market A's bid at $20.00. Assuch, the process routes the remaining 500 shares of incoming Sell Order6 to Market A. Market A fills the 500 shares and decreases its bid size.At step 166, the process determines that incoming Sell Order 6 has noremaining shares available, and processing is complete, as indicated atstep 170.

The internal book looks like this:

Bids Offers Order 5: 400 @ 20.00. MaxPrice = 20.02 MarketA: 400 @ 20.03Tracking Process MarketA: 200 @ 20.00 Order 4: 600 @ 20.04 Order 3:300 @19.99

The public order book looks like this:

Bids Offers Posting Market Posting Market Center 300 @ 19.99 Center 600@ 20.04

Example 3: Tracking Liquidity Buy Order is Repriced at its Limit whenthe NBB Changes

In this example, Away Market Center A changes its quote to $20.03 to$20.04 (500×300). When the posting market center 20 has TrackingLiquidity Buy Orders resting on the internal book and detects a new NBB,it checks to see if it should reprice any of the orders.

Referring to FIG. 8 , at step 302, the process retrieves the TrackingLiquidity Buy Order with the highest current executable price (i.e. thehighest CurrentBuyPrice). In this example, it retrieves Buy Order 5, theonly Tracking Liquidity Order in the internal book. The process thencompares the new NBB ($20.03) to the CurrentBuyPrice of the TrackingLiquidity Order ($20.00), at step 304.

In this example, since the NBB price is not less than theCurrentBuyPrice of Tracking Liquidity Buy Order 5, the process continuesto step 306 to determine if the NBB is greater than the CurrentBuyPriceinstead. In this example, the NBB ($20.03) is greater than theCurrentBuyPrice ($20.00), so Buy Order 5 can potentially be priced moreaggressively, up to the lesser of the NBB and its “MaxPrice.” At step310, the process compares the NBB ($20.03) to Tracking Liquidity BuyOrder 5's MaxPrice ($20.02), and determines that the NBB is higher. Atstep 313, the process checks if Tracking Liquidity Buy Order 5 isalready priced as high as it can be, i.e., if its CurrentBuyPrice($20.00) and its MaxPrice ($20.02) are equal. As they are not, theprocess, in turn, sets the CurrentBuyPrice of Tracking Liquidity BuyOrder 5 to $20.02, its MaxPrice, as indicated at step 314. At step 316,the process inserts Tracking Liquidity Buy Order 5 in the TrackingProcess level of the internal book according to the price/time priorityof its new CurrentBuyPrice, $20.02. Away Market A's bid at $20.03 issuperior to the price of Buy Order 5. At step 318, the process checkswhether there are any additional Tracking Liquidity Buy Orders that mayneed to be repriced, and finding none, processing is complete, asindicated at 320.

The internal book now looks like this:

Bids Offers MarketA: 500 @ 20.03 ← Order 4: 600 @ 20.04 Order 5: 400 @20.02, MarketA: 300 @ 20.04 ← MaxPrice = 20.02 Tracking Process ← Order3: 300 @ 19.99

The public order book remains unchanged and looks like this:

Bids Offers Posting Market Posting Market Center 300 @ 19.99 Center 600@ 20.04As Tracking Liquidity Buy Order 5 is no longer at the NBB, if amarketable incoming sell order were to be received at this time, itwould not be eligible to intercept it, as that would result in atrade-through violation. For example, if the process received an orderto Sell 300 @ 20.02 at step 120, it would retrieve Tracking LiquidityBuy Order 5 at step 122, determine that the prices are equal at step124, retrieve the NBB ($20.03) at step 126, and determine that TrackingLiquidity Buy Order 5 ($20.02) is inferior to the NBB at step 128. Theprocess would then continue to step 134, where it routes the incomingSell order to Away Market A and then stops at step 142.

Example 4: Tracking Liquidity Buy Order is Repriced at the NBB when theNBB Changes

In this example, Away Market Center A changes its quote to $20.01 to$20.03 (200×400). Referring again to FIG. 8 , at step 302, the processretrieves the Tracking Liquidity Buy Order with the highest currentexecutable price (i.e. the highest CurrentBuyPrice). In this example, itretrieves Buy Order 5 again, the only Tracking Liquidity Order in theinternal book. The process then compares the new NBB ($20.01) to theCurrentBuyPrice of the Tracking Liquidity Order ($20.02), at step 304.

As the NBB price is lower than the CurrentBuyPrice, Buy Order 5 must berepriced less aggressively. The process sets the CurrentBuyPrice ofTracking Liquidity Buy Order 5 to $20.01, the new NBB, as indicated atstep 312. At step 316, the process inserts Tracking Liquidity Buy Order5 in the Tracking Process level of the internal book according to theprice/time priority of its new CurrentBuyPrice, $20.01. Buy Order 5 haspriority over Away Market A's bid at $20.01, as the prices are equal buttrading interest resident on the posting market center 20 has priorityover away market interest at the same price. At step 318, the processchecks whether there are any additional Tracking Liquidity Buy Ordersthat may need to be repriced, and finding none, processing is complete,as indicated at 320.

The internal book now looks like this:

Bids Offers Order 5: 400 @ 20.01, MarketA: 400 @ 20.03 ← MaxPrice =20.02 Tracking Process ← MarketA: 200 @ 20.01 ← Order 4: 600 @ 20.04Order 3: 300 @ 19.99

The public order book remains unchanged and still looks like this:

Bids Offers Posting Market Posting Market Center 300 @ 19.99 Center 600@ 20.04

Example 5: Tracking Liquidity Buy Order Intercepts Incoming Sell

The posting market center 20 receives the following order:

-   -   Order 7: Sell 300 @ Market

Referring to FIG. 4 , at step 122, the process retrieves its best(highest-priced) buy order, which is Tracking Liquidity Buy Order 5 inthis example. The process compares the price of the incoming Sell Order(Market) to the retrieved Buy Order's price at step 124. As Buy Order 5is a Tracking Liquidity Order, its price is currently set at $20.01, itsCurrentBuyPrice. As a Market Order is always marketable by definition,the process retrieves the NBB ($20.01) at step 126. At step 128, itchecks whether retrieved Buy Order 5's price ($20.01) is at the NBB($20.01) so that trade through rules will be respected. As Buy Order 5is at the NBB, the process continues to step 130, where it checks to seeif Buy Order 5 is a Tracking Liquidity Order. The process determinesthat Buy Order 5 is a Tracking Liquidity Order. At step 132, the processdetermines that incoming Sell Order 7, as an unconditioned Market Order,is eligible to route, and is therefore eligible to match Buy Order 5according to the rules for the order types. However, it can matchTracking Liquidity Buy Order 5 only if it complies with the ‘sizeprevents routing’ rule—namely that the number of remaining shares of theincoming order needs to be less than or equal to the number of sharesavailable to trade in the Tracking Liquidity Order to prevent routing.The process invokes the routine to determine if the incoming order canbe fully intercepted, as indicated at step 136.

Referring to FIG. 6 , the process continues on to compare the Leavesquantity of incoming Sell Order 7 (300 shares—the full order size) tothe size of Tracking Liquidity Buy Order 5 (400 shares) at step 152. Asthe incoming order size is less than the Tracking Liquidity Order size,a match is permissible as indicated.

At step 154, the process matches the 300 shares of incoming sell Order 7with Tracking Liquidity Buy Order 5 at the price of $20.01, the NBBprice. The process then checks to see if Tracking Liquidity Buy Order 5still has unexecuted shares at step 156. As Tracking Liquidity Buy Order5 has 100 shares remaining, the process cancels these remaining 100shares, as indicated at 158, and removes the order from the internalbook. The process completes at step 170 as shown.

The internal book now looks like this:

Bids Offers MarketA: 200 @ 20.01 MarketA: 400 @ 20.03 Order 3: 300 @19.99 Order 4: 600 @ 20.04

The public order book remains unchanged and still looks like this:

Bids Offers Posting Market Posting Market Center 300 @ 19.99 Center 600@ 20.04

Example 6: Incoming Tracking Liquidity Sell Order is Received

The posting market center 20 receives the following order:

-   -   Order 8: Sell 400 @ 19.99, Tracking Liquidity

The NBBO is $20.01 to $20.03 (200×400). Although in this example,incoming Tracking Liquidity Sell Order 8 includes a specified limitprice ($19.99) that crosses the current NBB (Market A's bid at $20.01)and locks the posting market center's own order book (posted Buy Order 3at $19.99), the specified limit price is irrelevant since the ordercannot currently execute at its specified “MinPrice.” The MinPrice onlydefines the floor that caps how low the order will follow the NBO.Referring to FIG. 3 , the process stores the specified limit price of$19.99 as the MinPrice of Tracking Liquidity Sell Order 8 at step 202.At step 204, it retrieves the NBO ($20.03) for the purpose ofdetermining the relationship between the MinPrice and the NBO. At step206, the process compares the MinPrice ($19.99) to the NBO ($20.03), anddetermines that the MinPrice is lower. In this example, as the MinPriceis lower than the NBO, the process, therefore, sets the currentexecutable price (i.e., CurrentSellPrice) to $20.03, the NBO price, asindicated at 210. The process then inserts Tracking Liquidity Sell Order8 in the Tracking Process level of the internal book at step 212 inprice/time priority at its CurrentSellPrice, $20.03, and processing iscompleted at step 214. As Tracking Liquidity Sell Order 8 can onlypresently execute at $20.03, the NBO, no trade through would result ifit executed at this price.

The internal book looks like this:

Bids Offers MarketA: 200 @ 20.01 Order 8: 400 @ 20.03, MinPrice = 19.99Tracking Process ← Order 3: 300 @ 19.99 MarketA: 400 @ 20.03 Order 4:600 @ 20.04

The public order book remains unchanged and still looks like this:

Bids Offers Posting Market Posting Market Center 300 @ 19.99 Center 600@ 20.04

Example 7: Tracking Liquidity Sell Order is Repriced at NBO when NBOChanges

In this example, Away Market A changes its offer to 900 at $20.02.Referring to FIG. 9 , at step 352, the process retrieves the TrackingLiquidity Sell Order with the lowest current executable price (i.e. theCurrentSellPrice). In this example, it retrieves Sell Order 8, the onlyTracking Liquidity Order in the internal book. The process then comparesthe new NBO ($20.02) to the CurrentSellPrice of the Tracking LiquidityOrder ($20.03), at step 354.

In this example, since the NBO price is not greater than theCurrentSellPrice of Tracking Liquidity Sell Order 8, the processcontinues to step 356 to determine if the NBO is less than theCurrentSellPrice instead. In this example, the NBO ($20.02) is less thanthe CurrentSellPrice ($20.03), so Sell Order 8 can potentially be pricedmore aggressively, down to the greater of the NBO and its “MinPrice.” Atstep 360, the process compares the NBO ($20.02) to Tracking LiquiditySell Order 8's MinPrice ($19.99), and determines that the NBO is higher.The process, in turn, sets the CurrentSellPrice of Tracking LiquiditySell Order 8 to $20.02, the new NBO price, as indicated at step 362. Atstep 366, the process inserts Tracking Liquidity Sell Order 8 in theTracking Process level of the internal book according to the price/timepriority of its new CurrentSellPrice, $20.02. At step 368, the processchecks whether there are any additional Tracking Liquidity Sell Ordersthat may need to be repriced, and finding none, processing is complete,as indicated at 370.

The internal book now looks like this:

Bids Offers MarketA: 200 @ 20.01 Order 8: 400 @ 20.02, MinPrice = 19.99Tracking Process ← Order 3: 300 @ 19.99 MarketA: 900 @ 20.02 ← Order 4:600 @ 20.04

The public order book remains unchanged and still looks like this:

Bids Offers Posting Market Posting Market Center 300 @ 19.99 Center 600@ 20.04

Example 8: Incoming Tracking Liquidity Sell Order with Better Price isReceived

The posting market center 20 receives the following order:

-   -   Order 9: Sell 600 @ 19.98, Tracking Liquidity

Referring to FIG. 3 , the process evaluates Sell Order 9 in much thesame manner as it did Sell Order 8. Upon receiving Tracking LiquiditySell Order 9 at step 200, the process stores the specified limit price($19.98) as the order's MinPrice at step 202, retrieves the NBO ($20.02)at step 204, and compares the MinPrice to the NBO at step 206. As theMinPrice is lower than the NBO, the process sets the current executableprice (i.e., CurrentSellPrice) to $20.02, the NBO price, as indicated at210. The process then inserts Tracking Liquidity Sell Order 9 in theLiquidity Process level of its internal book at step 212. As bothTracking Liquidity Order 8 and Tracking Liquidity Order 9 have the sameCurrentSellPrice ($20.02, the NBO), Tracking liquidity Order 8 hashigher priority in the internal book because it has time priority at theCurrentSellPrice of $20.02, even though Tracking Liquidity Order 9 has asuperior (lower) MinPrice. This illustrates that Tracking Liquidity SellOrders are ranked according to their current executable price, and notaccording to their minimum pegging price.

The internal book looks like this:

Bids Offers MarketA: 200 @ 20.01 Order 8: 400 @ 20.02, MinPrice = 19.99Tracking Process Order 3: 300 @ 19.99 Order 9: 600 @ 20.02, MinPrice =19.98 Tracking Process ← MarketA: 900 @ 20.02 Order 4: 600 @ 20.04

The public order book is unchanged and still looks like this:

Bids Offers Posting Market Posting Market Center 300 @ 19.99 Center 600@ 20.04

Example 9: Lower Priority Tracking Liquidity Sell Order Trades withIncoming Buy Order

The posting market center 20 receives the following order:

-   -   Order 10: Buy 500 @ 20.03

Referring to FIG. 5 , the process retrieves its best sell order, whichis Tracking Liquidity Order 8 in this example. The process then comparesthe price of incoming Buy Order 10 ($20.03) to the price of retrievedSell Order 8 (whose CurrentSellPrice=$20.02) at step 224. The pricesoverlap, so the process retrieves the NBO ($20.02) at step 226, andcompares it to the price of retrieved Sell Order 8 ($20.02) at step 228.As the prices are equal since Sell Order 8 is at the NBO, the processchecks to see if Sell Order 8 is a Tracking Liquidity Order at step 230.In this example, the process determines that Sell Order 8 is a TrackingLiquidity Order. At step 232, the process determines that incoming BuyOrder 10 is a regular limit-priced order, an order type that is eligiblefor routing. As such, Buy Order 10 is potentially eligible to match withTracking Liquidity Sell Order 8 subject to the ‘size prevents routing’rule, as indicated at step 236. The process invokes the routine todetermine if the incoming Buy Order can be fully intercepted.

In this regard, referring to FIG. 7 , the process compares the Leavesquantity of incoming Buy Order 10 (500 shares—the full order size) tothe size of Tracking Liquidity sell Order 8 (400 shares) at step 252. Inthis example, since the size of the incoming Buy Order exceeds the sizeof the Tracking Liquidity Sell Order, the process cannot match theseorders.

The process, therefore, proceeds to step 259, where it checks whetherany additional Tracking Liquidity Sell Orders are present in theinternal book. Sell Order 9 is also a Tracking Liquidity Order, so theprocess retrieves its next best Tracking Liquidity Sell Order, which isTracking Liquidity Order 9, as indicated at step 260. The processdetermines that Sell Order 9 is also at the NBO by comparing itsCurrentSellPrice ($20.02) to the NBO ($20.02) at step 262. As TrackingLiquidity Sell Order 9 is at the NBO and therefore eligible forexecution in this example, the process once again applies the ‘sizeprevents routing’ rule to determine, as before, if the incoming BuyOrder can be fully intercepted, by returning to step 252.

Referring again to step 252, the process compares the size of incomingBuy Order 10 (500 shares) to the size of retrieved Tracking LiquiditySell Order 9 (600 shares) at step 252. Since the size of the incomingBuy Order is less than the size of this Tracking Liquidity Sell Order, amatch is permissible. The process, therefore, matches incoming Buy Order10 with Tracking Liquidity Sell Order 9 at the NBO price of $20.02, asindicated at step 254. The process then checks to see if TrackingLiquidity Sell Order 9 still has any unexecuted shares at step 256.Order 9 has 100 shares remaining in this example, so the process cancelsthe remaining 100 shares, as indicated at 258. Tracking Liquidity SellOrder 9 is removed from the internal book. Tracking Liquidity Sell Order8 remains in the internal book and is available for matching.

The internal book looks like this:

Bids Offers MarketA: 200 @ 20.01 Order 8: 400 @ 20.02, MinPrice = 19.99Tracking Process Order 3: 300 @ 19.99 MarketA: 900 @ 20.02 Order 4: 600@ 20.04

The public order book remains unchanged and still looks like this:

Bids Offers Posting Market Posting Market Center 300 @ 19.99 Center 600@ 20.04

Example 10: Tracking Liquidity Buy Order is Received and Ranked on anOptions Posting Market Center

The examples that follow immediately illustrate one implementation ofhow Tracking Liquidity Orders trade on an options marketplace. In theseexamples, the posting market center has appointed Market Makers in someissues. When an appointed Market Maker is the Lead Market Maker in theissue, then that Market Maker is guaranteed participation with incomingorders in accordance with the business rules of the posting marketcenter. By way of example, some of those business rules are implementedin the Order Execution Process referred to as the Lead Market MakerGuarantee Process in this document.

It should be understood that the Market Maker Guarantee Processdescribed below is subject to change and serves only to illustrate thematching priority of Market Maker quotes in relation to resting TrackingLiquidity Orders stored on the posting market center, and that a broaderdiscussion of Market Maker rules, responsibilities, and entitlements isbeyond the scope of this document. For the purposes of this example, theissue has a Lead Market Maker (“LMM”), and if the Lead Market Maker isquoting at the NBBO at the time an incoming marketable order isreceived, the Lead Market Maker is guaranteed participation with theincoming order. In this example, participation is guaranteed for up to40% of the remaining quantity of the incoming order, after customerorders with price/time priority ahead of the Lead Market Maker's quotehave been satisfied first. As the business rules for the Lead MarketMaker Guarantee Process may be implemented differently, it should benoted that the purpose of these examples is not to illustrate MarketMaker Guarantees, it is to illustrate the ranking of Market Maker quotescompared to Tracking Liquidity Orders within the order matching engine21. The invention is in no way limited to the embodiments used below forillustration purposes. It should also be noted that in the examples thatfollow, Away Market Center A's quote is shown in the same table(“combined Quote Book”) as Lead Market Maker LMM's quote 33 forillustration purposes, although away market quotes may actually bestored in a different table 25.

At the start of this example, the NBBO is $2.00 to $2.10 (50×80). Thecombined Quote Book looks like this:

Bids Offers MarketA: 50 @ 2.00   LMM: 30 @ 2.10   LMM: 40 @ 1.95MarketA: 50 @ 2.10

The internal order book looks like this:

Bids Offers Order 20: 10 @ 1.95 Order 21: 20 @ 2.15

The public order book, which disseminates the aggregated Market Makerquotes and displayed orders, looks like this:

Bids Offers Posting Market Center 50 @ 1.95 Posting Market Center 30 @2.10 Posting Market Center 20 @ 2.15

The posting market center 20 receives the following order:

-   -   Order 22: Buy 20 @ 2.10, Tracking Liquidity

The process is activated and, referring to FIG. 2 , at step 102, theprocess stores the specified limit price on incoming Tracking LiquidityBuy Order 22 ($2.10) as the value of its “MaxPrice,” the highest priceto which Buy Order 22 will follow the NBB. The process continues to step104, where it retrieves the NBB ($2.00). The process compares theMaxPrice of Buy Order 22 ($2.10) to the NBB ($2.00) at step 106. In thiscase, the MaxPrice is higher than the NBB, so the process sets thecurrent executable price of the Tracking Liquidity Buy Order (i.e. the“CurrentBuyPrice” parameter) to the NBB price ($2.00) at step 110. Theprocess inserts Tracking Liquidity Buy Order 22 into the TrackingProcess sublevel of the internal order book at step 112, where it isranked according to the price/time priority of its CurrentBuyPrice($2.00). At the price of $2.00, Tracking Liquidity Buy Order 22 ispresently ranked first among the orders and quotes, as it alone canexecute at the price of $2.00 on the posting market center 20. Theprocess is completed at step 114 as indicated.

The combined Quote Book remains unchanged and still looks like this:

Bids Offers MarketA: 50 @ 2.00   LMM: 30 @ 2.10   LMM: 40 @ 1.95MarketA: 50 @ 2.10

The internal order book now looks like this:

Bids Offers Order 22:20 @ 2.00, MaxPrice = 2.10. Order 21: 20 @ 2.15Tracking Process ← Order 20:10 @ 1.95

The public order book remains unchanged and still looks like this:

Bids Offers Posting Market Center 50 @ 1.95 Posting Market Center 30 @2.10 Posting Market Center 20 @ 2.15

Example 11: Tracking Liquidity Buy Order Cannot Intercept Incoming SellOrder

The posting market center 20 receives the following order:

-   -   Order 23: Sell 30 @ 2.00

When a marketable incoming order is received in an issue that has anassigned Lead Market Maker, the order matching engine 21 attempts toexecute the order in the Lead Market Maker Guarantee Process ifpossible. However, the Lead Market Maker is not entitled to guaranteedparticipation unless the Market Maker's quote is at the NBBO at the timethe incoming order is received. In this example, the LMM bid (40 @$1.95) is inferior to the NBB ($2.00), so incoming Sell Order 23 cannotexecute in the Lead Market Maker Guarantee Process, and the ordermatching engine 21 processes the order as if the issue did not have aLead Market Maker.

At step 122 in FIG. 4 , the process retrieves the highest-priced restingbuy order. As there are no orders in the Display Process or the WorkingProcess that can execute at $2.00, it retrieves Tracking Liquidity BuyOrder 22 in this example. The process compares the price of incomingSell Order 23 ($2.00) with retrieved Buy Order 22 at step 124. As BuyOrder 22 is a Tracking Liquidity Order, its price is set at the value ofits CurrentBuyPrice ($2.00). The process compares the prices anddetermines that they are equal. As the prices are equal, the processretrieves the NBB ($2.00) at step 126, and compares the price ofretrieved Buy Order 22 ($2.00) to the NBB. As the prices are equal andthe orders are eligible to match, the process checks to see if retrievedBuy Order 22 is a Tracking Liquidity Order at step 130. In this example,Buy Order 22 is a Tracking Liquidity Order, which means that it can onlyexecute with order types that are eligible to be routed off the postingmarket center 20. At step 132, the process determines that incoming SellOrder 23, as a regular limit-priced order, is eligible to route, and istherefore eligible to match Buy Order 22 according to the rules for theorder types. However, it can match Tracking Liquidity Buy Order 22 onlyif it complies with the ‘size prevents routing’ rule—namely that thenumber of remaining contracts of the incoming order needs to be lessthan or equal to the number of contracts available to trade in theTracking Liquidity Order to prevent routing. The process invokes theroutine to determine if the incoming order can be fully intercepted, asindicated at step 136.

Referring to FIG. 6 , the process compares the size of TrackingLiquidity Buy Order 22 (20 contracts) to the Leaves quantity of incomingSell Order 23 (30 contracts—the full order size) at step 152. As theLeaves quantity of incoming Sell Order 23 exceeds the size of TrackingLiquidity Buy Order 22 in this example, Order 22 is not large enough toprevent Order 23 from routing. As a result, the process determines thatTracking Liquidity Buy Order 22 cannot trade, and the process bypassesTracking Liquidity Buy Order 22 and continues to step 159, where itchecks to see if there are any additional Tracking Liquidity Buy Ordersthat could possibly interact with incoming Sell Order 23 instead. Asnone exist, the process looks for away market bids whose prices overlapwith incoming Sell Order 23, as indicated at step 164, and finds MarketA's bid at $2.00. As such, the process routes all 30 contracts ofincoming Sell Order 23 to Market A. Market A fills the 30 contracts anddecreases its bid size. At step 166, the process determines thatincoming Sell Order 23 has no remaining contracts available, andprocessing is complete, as indicated at step 170.

The combined Quote Book looks like this:

Bids Offers MarketA: 20 @ 2.00 ←   LMM: 30 @ 2.10   LMM: 40 @ 1.95  MarketA: 50 @ 2.10

The internal order book remains unchanged and still looks like this:

Bids Offers Order 22: 20 @ 2.00, MaxPrice = 2.10. Order 21: 20 @ 2.15Tracking Process Order 20:10 @ 1.95

The public order book remains unchanged and still looks like this:

Bids Offers Posting Market Center 50 @ 1.95 Posting Market Center 30 @2.10 Posting Market Center 20 @ 2.15

Example 12: Tracking Liquidity Order Intercepts Incoming Order After ItTrades With Market Maker Quote

-   -   Lead Market Maker LMM updates its bid to 40 @ 2.00. The NBBO is        now $2.00 to $2.10 (60×80).

The combined Quote Book now looks like this:

Bids Offers   LMM: 40 @ 2.00 ←   LMM: 30 @ 2.10 MarketA: 20 @ 2.00  MarketA: 50 @ 2.10

The internal order book remains unchanged and still looks like this:

Bids Offers Order 22:20 @ 2.00, MaxPrice = 2.10. Order 21: 20 @ 02.15Tracking Process Order 20:10 @ 1.95

The public order book now looks like this:

Bids Offers Posting Market Center 40 @ 2.00 ← Posting Market Center 30 @2.10 Posting Market Center 10 @ 1.95 ← Posting Market Center 20 @ 2.15

The posting market center 20 receives the following order:

-   -   Order 24: Sell 60 @ 2.00

Although in the previous example, Lead Market Maker LMM was not entitledto guaranteed participation because its bid was not at the NBB at thetime the incoming order was received, the situation is different now. Inthis example, the LMM bid (40 @ $2.00) is equal to the NBB ($2.00), soincoming Sell Order 24 can execute in the Lead Market Maker GuaranteeProcess. In this example, the Lead Market Maker is guaranteed executionof up to 40% of the Leaves quantity of an incoming order, after thatorder has first satisfied any displayed Customer orders with price/timepriority. As Tracking Liquidity Buy Order 22 has time priority but isnot a displayed Customer order, and Buy Order 20 is displayed but has aninferior price ($1.95), no orders have priority over the LMM bid. Assuch, the LMM bid is entitled to trade fully with incoming Sell Order 24in this example. The order matching engine 21 executes 40 contracts ofincoming Sell Order 24 against a buy order automatically generated onbehalf of the LMM bid at $2.00 in the Lead Market Maker GuaranteeProcess. (Alternatively, in a different implementation, the 40 contractsmay be executed in two steps: 24 contracts may execute in the LeadMarket Maker Guarantee Process according to the 40% guarantee (40% of60=24), and the remaining 16 contracts may execute in the DisplayProcess according to normal price/time priority.) At the conclusion ofthe process, the order matching engine 21 determines that incoming SellOrder 24 still has 20 contracts available to trade.

At step 122 in FIG. 4 , the process retrieves the highest-priced restingbuy order. As there are no additional Market Maker bids at $2.00 andthere are no orders in the Display Process or the Working Process thatcan execute at $2.00, it retrieves Tracking Liquidity Buy Order 22 inthis example. The process compares the price of incoming Sell Order 24($2.00) with retrieved Buy Order 22 at step 124. As Buy Order 22 is aTracking Liquidity Order, its price is set at the value of itsCurrentBuyPrice ($2.00). The process compares the prices and determinesthat they are equal. As the prices are equal, the process retrieves theNBB (still $2.00) at step 126, and compares the price of retrieved BuyOrder 22 ($2.00) to the NBB. As the prices are equal and the orders areeligible to match, the process checks to see if retrieved Buy Order 22is a Tracking Liquidity Order at step 130. In this example, Buy Order 22is a Tracking Liquidity Order, which means that it can only execute withorder types that are eligible to be routed off the posting market center20. At step 132, the process determines that incoming Sell Order 24, asa regular limit-priced order, is eligible to route, and is thereforeeligible to match Buy Order 22 according to the rules for the ordertypes. However, it can match Tracking Liquidity Buy Order 22 only if itcomplies with the ‘size prevents routing’ rule—namely that the number ofremaining contracts of the incoming order needs to be less than or equalto the number of contracts available to trade in the Tracking LiquidityOrder to prevent routing. The process invokes the routine to determineif the incoming order can be fully intercepted, as indicated at step136.

Referring to FIG. 6 , the process compares the size of TrackingLiquidity Buy Order 22 (20 contracts) to the Leaves quantity of incomingSell Order 24 (20 contracts) at step 152. As the sizes are equal in thisexample, the process determines that the orders can trade. At step 154,the process matches the remaining 20 contracts of incoming Sell Order 24with Tracking Liquidity Buy Order 22 at the NBB price of $2.00. At step156, the process checks whether Tracking Liquidity Buy Order 22 has anyquantity remaining to trade, and determining that it does not, itproceeds to step 170 where the process stops.

The combined Quote Book looks like this after LMM moves its bid:

Bids Offers MarketA: 20 @ 2.00     LMM: 30 @ 2.10  LMM: 40 @ 1.95 ←MarketA: 50 @ 2.10

The internal order book looks like this after Order 22 is removed:

Bids Offers Order 20: 10 @ 1.95 Order 21: 20 @ 2.15

The public order book looks like this:

Bids Offers Posting Market Center 50 @ 1.95 Posting Market Center 30 @2.10 Posting Market Center 20 @ 2.15

While the invention has been discussed in terms of certain embodiments,it should be appreciated that the invention is not so limited. Theembodiments are explained herein by way of example, and there arenumerous modifications, variations and other embodiments that may beemployed that would still be within the scope of the present invention.

The invention claimed is:
 1. A computer-implemented method comprising:in a computing system comprising a posting market center computercoupled to a plurality of external data sources via a network, theposting market center computer having at least one non-transitorycomputer-readable storage medium with at least one region for storingexecutable program code and at least one processor for executing theprogram code stored in the at least one non-transitory computer-readablestorage medium, the program code defining an interface, at least oneorder matching engine and an order book: receiving, via the interface,displayed and nondisplayed orders, at least one of the nondisplayedorders including a tracking liquidity order; storing, by the at leastone order matching engine in the order book, the displayed andnondisplayed orders; receiving, via the interface, from among theplurality of external data sources, an incoming order that is eligiblefor routing to an away market among the plurality of external datasources; determining, by the at least one order matching engine, toprevent said incoming order that is eligible for routing to the awaymarket from being routed to the away market; and executing, by the atleast one order matching engine, said incoming order against thetracking liquidity order without routing said incoming order to the awaymarket.
 2. The method of claim 1, wherein no price and no size componentof the tracking liquidity order is displayed in the order book.
 3. Themethod of claim 1, further comprising publishing market maker quotes andgenerating an order on behalf of a market maker quote when the marketmaker quote is deemed marketable.
 4. The method of claim 1, furthercomprising identifying a contra side order in the order book anddetermining that the contra side order is at a national best bid oroffer.
 5. The method of claim 4, wherein the tracking liquidity ordercomprises a buy order and the incoming order comprises a sell order,wherein the displayed and nondisplayed orders include displayed andnondisplayed buy orders, wherein the tracking liquidity buy order has afluctuating current price parameter, and wherein the fluctuating currentprice parameter of the tracking liquidity buy order is capped at anational best bid price to prevent a trade through violation.
 6. Themethod of claim 5, further comprising resetting the fluctuating currentprice parameter of the tracking liquidity buy order when the nationalbest bid price changes.
 7. The method of claim 6, wherein the trackingliquidity order comprises a maximum price, and wherein the fluctuatingcurrent price parameter of the tracking liquidity buy order cannotexceed the maximum price, regardless of the national best bid.
 8. Themethod of claim 5, wherein if the fluctuating current price parameter ofthe tracking liquidity buy order is superior to the price of thedisplayed and nondisplayed buy orders in the order book, then thetracking liquidity buy order has priority to execute against an incomingmarketable sell order that is about to route to the away market.
 9. Themethod of claim 5, wherein if the fluctuating current price parameter ofthe tracking liquidity buy order is equal to the price of the displayedand nondisplayed buy orders in the order book, then the trackingliquidity buy order is eligible to execute against an incomingmarketable sell order only after the incoming sell order has matched alldisplayed and nondisplayed buy orders and is about to route to the awaymarket.
 10. The method of claim 1, wherein the tracking liquidity ordercomprises a sell order and the incoming order comprises a buy order, andwherein the displayed and nondisplayed orders include displayed andnondisplayed sell orders.
 11. The method of claim 10, wherein thetracking liquidity sell order has a fluctuating current price parameter,and wherein the fluctuating current price parameter of the trackingliquidity sell order is capped at a national best offer price to preventa trade through violation.
 12. The method of claim 11, furthercomprising resetting the fluctuating current price parameter of thetracking liquidity sell order when a national best offer price changes.13. The method of claim 12, wherein the tracking liquidity sell orderfurther has a minimum price, and wherein the fluctuating current priceparameter of the tracking liquidity sell order cannot be lower than theminimum price, regardless of the national best offer.
 14. The method ofclaim 11, wherein if the fluctuating current price parameter of thetracking liquidity sell order is superior to the price of the displayedand nondisplayed sell orders in the order book, then the trackingliquidity sell order has priority to execute against an incomingmarketable sell order that is about to route to the away market.
 15. Themethod of claim 11, wherein if the fluctuating current price parameterof the tracking liquidity sell order is equal to the price of thedisplayed and nondisplayed sell orders in the order book, then thetracking liquidity sell order is eligible to execute against an incomingmarketable sell order only after the incoming sell order has matched alldisplayed and nondisplayed buy orders and is about to route to the awaymarket.
 16. The method of claim 1, further comprising determining thatthe incoming order is eligible for routing to the away market.
 17. Themethod of claim 1, further comprising routing the incoming order to theaway market when a contra side order that corresponds to a price of theincoming order is not identified in the order book.